Europe-MidEast-Africa Base Oil Price Report

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As some form of normality returns following the holiday season, the EMEA base oil market has been eagerly anticipating the immediate future and direction the market will take.

There have been many scenarios put forward throughout the industry, but at this stage no real clear path has been established, other than what many see as an extension of the year-end picture. With demand factors and off-take estimates unchanged, it is hard to see what can alter attitudes in the base oil markets.

Very few sellers have demonstrated any real drive to reverse the downward price trend, although most would advocate that the market has bottomed out. This may be enough for many at this time, since the relentless discounting of the last few months has been somewhat wearing to say the least.

Behind the scenes after almost a full weeks trading, crude oil has made a market U-turn by dropping some $4 per barrel during the last seven days, but returning to where it was six days ago at $112/bbl. This seesaw effect is down to changing perceptions of the EU and U.S. economies, and is forecast to continue in spite of adequate stocks and reserves being available. Against the new crude pipelines being built in the United States, the crack between WTI and Dated Brent is the least seen for some time.

ICE gas oil has followed a similar path, dropping back to around $920 per metric ton in end week trading, but now has rallied to $949/t, following the upswing on the crude front.

The reason for the more in-depth discussion on crude is that European refiners are now postulating that crude will not fall, as some forecast at the end of last year, and hence decisions have to be made to improve realisations on speciality products such as base oils, bitumen and other petroleum derivatives which have lapsed in value due to lower demand and oversupply.

Many producers are commenting that the time has come to decide whether to continue to manufacture products such as base oil or whether to limit production to the absolute minimum to serve contract business, and in-house blending requirements. Should these actions be implemented there could be serious repercussions for the base oil spot and export trade, in that availability of material from traditional sources could be limited.

With aforesaid in mind, it has been difficult to amend price levels from that of the last three weeks. The anticipation was that levels might have started to rise with a small surge in demand to replenish stocks and inventories, but this appears to have been unfounded, with buyers sitting on the fence.

Group l European prices remain the same as last week, with few new deals being reported. Solvent neutral light grades remain between $880-$905/t, with heavier grades at $900-$935/t. Bright stock ex European mainland is assessed at $985-$1020/t.

All the prices above refer to FOB levels, from mainland suppliers in Europe or North Africa, where the availability of various grades can be offered.

Local European mainland prices have also marked time, with deliveries of contracted sales getting back to normal levels reported at the end of last year. Some blenders in Benelux have commented that they are again looking for lower numbers, and have been offered material from traders and distributors who would normally only be involved in export or deep-sea business. This may reflect the lack of opportunity for traditional export trade to be effected, thereby increasing competition in an already flooded marketplace.

Price levels for locally delivered Group l grades are still 35-55/t higher than the reported export levels above.

Baltic and Black Seas
Baltic business has been quiet, with only a small number of bulk enquiries from the usual traders looking to West Africa, Central and South America, and local Northwest Europe supplies. Cargoes being lifted over the last few days had been purchased weeks ago, and can be attributed to 2012 business. There are many enquiries for small parcels of material loaded in flexies which can be sold CIF or CFR at a premium to bulk cargoes.

Some sellers are maintaining trial price increases reported last week, looking to hoist levels some $30-$50 over December lows. Whether these will be effective remains uncertain, and this action may have to be extended over a longer period with smaller increments to make the plan work.

Prices of SN 150 and SN 500 are holding at $840-$885/t basis FOB, with SN 900 being offered at $890-$935/t.

Black Sea activity of Russian supplies has amounted to almost zero, with Iranian cargoes of SN 150 and SN 500 arriving from the Middle East Gulf region into Turkey. The CIF landed levels for these parcels is $900/t, whilst Russian traders are looking for minimum prices of $920-$935/t. Rumours are that the Iranian supplies may have started to dry up, although this is not confirmed as of going to publication.

Middle East
A couple of reported Iranian cargoes of some 3500 metric tons each have been reported exported from BIK. One parcel is en route to Hamriyah, UAE, the other for the west coast of India. The local UAE parcel is understandable, but how the Indian cargo has been purchased and conveyed remains a mystery. One mixed cargo of European Group l grades has arrived into Middle East Gulf region, but this is possibly intra-company supply.

Re-exports of material from UAE in flexies are moving to East and South Africa, but no reports of bulk shipments to these regions has been reported this week. Pakistani barrels are again being shown for export, and may possibly find a home in the UAE. Quantities of SN 150, SN 500 and bright stock have been offered for tender.

Sudanese receivers have issued another restricted tender for two cargoes of Group l grades. This is due to close in mid January.

Saudi Arabian supplies to Middle East receivers appear to be up in volume, perhaps reflecting the difficulties attached to receiving Iranian production into GCC countries.

Export prices from Saudi Arabia maintain ties with European levels, but manage to extract a premium over these numbers at $920-$975/t for the solvent neutrals range, with bright stock selling at $1025-$1055/t all basis FOB or FCA.

Africa
South African imports of Group l in flexies have been steady over the last few weeks, with more enquiries being issued for second tier quality material such as Iranian or Russian, where VI and colour can be two characteristics with lower values than prime South African production.

Another European cargo is under consideration for Durban, with a combination of Group l grades. No confirmation as to completion of the deal has been received at this time.

West African receivers have been busy with the physical importation of cargoes, which were loaded during November and December out of the Baltic and other Northwest European and Mediterranean ports. Buyers have been trying to arrange the next raft of supplies for this area, with Nigerian importers to the fore. Perhaps weak market in Europe has tempted buyers back sooner than contemplated, but with the threat that prices may start to rise, or that avails may start to be limited, the incentive to arrange further cargoes has increased.

Prices for CFR landed material remain the same as FOB levels and freight rates show little signs of change over the last few weeks. Prices remain $940-$980/t for Group l solvent neutrals, with bright stock where included in the cargo, at $1065-$1080/t, and SN 900 loaded ex Baltic at $975-$990/t.

Group II/III
Group ll European prices continue to track the plight of Group l grades, with lack of demand still a major negative, although some sellers have commented that these grades have not come under the same price pressure as Group l grades. Sales are still down, although with Group l and ll price differences narrowing, preference for some blenders is to opt for Group ll material.

Prices are $1050-$1075/t for lighter viscosity grades, with heavier products at $1085-$1145/t. These prices refer to material being offered ex tank either from storage in Northwest Europe or the Mediterranean.

Middle East Group ll base oil prices are confusing to say the least. Some buyers this week report prices being offered at lower levels than in December, bringing Middle East prices almost into line with west coast India offers. Others have commented that particular suppliers are trying to hike prices by $50-$70/t, to reflect higher raw material costs at source in the Far East. This weeks prices have not changed significantly as yet, hence are $1000-$1045/t for light grades from 60N through to 220N, with heavier vis grades such as 500N and 600N at $1045-$1080/t. All basis delivered prices CFR/CIF southern MEG ports.

Suppliers comments on the Group lll base oil market within mainland Europe are very bullish, with more than one commenting that they expect surplus of this grade to wane, and demand will increase significantly over the next two years. These comments may or may not reflect the current actual market, where prices are still under pressure, but may offer a glimmer of hope that these grades must be taken with a positive sentiment, given the enormous investments which have been committed, and are still currently being made to produce this new generation of base oils.

No notification of price changes has been received by buyers from Jan 1, with levels for both 4cst and 6cst grades continuing at 955-1010/t.

Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in East Grinstead, U.K. Contact him directly at pumacrown@email.com.

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