Europe-MidEast-Africa Base Oil Price Report


In the wake of slow demand, rising inventories, and weak underlying fundamentals, theres pressure for prices to come down. Few buyers express interest in large quantities of base oils ahead of the summer holiday season and sellers show no urgency to sell.

Dated Brent crude is trading at around $103 per barrel – only a $1 drop from last week and down below $100 in the past few days. Front month settlement for ICE gas oil has dropped around $10 per metric ton on a week-on-week basis, but like the crude oil pattern, has been some $30/t lower during this period.

This paints a confusing picture for base oil producers. The market shows length in supply terms but no clear direction. Coupled with weak demand throughout the region, this only provides a platform for limited selling in a lackluster market.

API Group I prices in Europe have dipped during the last few days, with index-related prices offered at some $25-$35/t below the lows, showing that levels are dropping more quickly than some may wish to acknowledge.

FOB levels are now reported between $945-$975/t for light solvent neutral grades. Heavy neutrals with viscosities around SN 500/600 have come down and are now within $975-$1000/t. Bright stock has also weakened, coming down to $1075-$1095/t. Buyers are still not enthused by these movements, believing that base oil values must fall further before large-scale purchasing will resume.

Local sales of Group I base oils have also declined, with many blenders adopting the same tactic as export markets. A number of large finished lube oil manufacturers were quoted saying that they did not require inventory until September in some cases, throwing a bleak outlook for sales during the next few months. Some had also moved their Group I business to alternative suppliers from Eastern Europe and the Baltic, commenting that prices were lower from those quarters, and that quality issues in most cases were not affected.

This could be a sign of future buying and trading patterns, which could ultimately affect Group I production with mainland Europe in years to come. It is no secret that more than one mainstream refiner is looking to cease production of Group I grades and move out of base oil production altogether.

Prices for local sales have not reported many changes, but June 1 alterations to numbers will come to light later this week. The differential between export prices and domestic sales is maintained at 80-100/t above export, due to the falls in cargo offers.

Baltic & Black Seas
Baltic region sales have been muted, with only one new enquiry for some 7,000 tons of mixed grades to be loaded during the first half of June. In some cases, buyers appear to have covered supply from other alternative sources where FOB prices and/or supply economics are more attractive. One such case is a cargo of 8,000 tons loading ex Brazil for West Africa, which may have been supplied ex Baltic.

Prices are down $10-$20/t, at $935-$940/t for SN 150, and SN 500 is still maintaining a small premium at $950-$960/t, all basis FOB Baltic ports. The heavier SN 900 is still in demand, particularly for West Africa supply. Held up at around $1025/t, this grade is being snapped up when available, and concessions are given on the other grades to make cargo economics attractive.

The outbreak of civil disturbances in Turkey is drastically affecting Black Sea base oil business. The escalation of violent protest over the weekend has paralyzed many businesses in Istanbul and Ankara, and also in surrounding regions. Quantifying the unrests effects is impossible, but some buyers have suspended shopping for base oils for as long as ports may be targets for demonstrations.

One cargo from Greece for June arrival into Gebze is still green-lighted, but other loadings from Black Sea installations have been cancelled until the situation becomes clearer.

At the moment, its impossible to indicate prices for supplies of base oils into Turkey, with freights being affected, and FOB levels possibly affected by lack of demand. Last weeks numbers are maintained only as a guide, at around $900-$925/t FOB for SN 150 and SN 500, with supply source being key to the spread. However, at the end of last week, prior to the problems starting, some Turkish buyers were looking for CIF at prices between $885-$895/t.

Middle East
North Africa and Near Middle East remain subdued with their own share of strife and civil war. Only one reported 3,000 ton cargo from Haifa has been identified for loading to Singapore, an unusual movement. The supply to Port Sudan is again on the table with loading out of Algeciras, based on CIF/CFR delivered prices of around $1035-$1050/t for Group I neutrals and around $1160/t for bright stock.

Requirements in countries such as Syria and Lebanon for finished lubes have boosted Middle East Gulf trade. Now, with problems in Turkey, perhaps this region will be more burdened to supply products to these areas, which cannot currently buy in and blend base oils.

Certainly a number of UAE blenders and traders have expanded sales into these regions, using Iranian, Pakistani, and locally-produced Group I base oils. More imports are being considered from U.S. and Europe, with one Black Sea offer on the table for a supply of Uzbek material. Delivered prices will have to compete with local Iranian barrels which are once again becoming more difficult to trade with further U.S. sanctions against Iran announced this week. Iranian prices are between $1010-$1025/t for avails of SN 500 on FOB basis ex BIK port. Offers for UAE FOB supplies of these grades are some $15/t higher due to handling and storage costs. Supplies of smaller quantities of SN 150 and SN 650 are also available.

UAE continues to supply East African demand, although interested parties are now considering other sources. Many supplies are in flexies, employing inland transportation to get these products to their final markets in landlocked locations such as Malawi, Zaire, and Uganda. Prices for supplies of SN 150 and SN 500 have been very attractive from Black Sea sources and have been offered between $985-$1020/t, basis delivered into Mombasa port.

Durban receivers continue to import SN 500 from traders in UAE, relying on these supplies quality. Other alternatives have been engaged, but importers appear to opt for supplies from traditional sources. Prices for SN 500 into Durban have been reported between $1085-$1140/t.

West African trade has been quiet this week, with only one report of a large parcel loading out of Fortaleza, Brazil, and destined for Lagos discharge. This cargo is some 14,000 tons of base oils, and will load during the second half June. Pricing is not yet known.

With other Baltic loadings being negotiated, its expected that some 50,000-60,000 tons of base oil will arrive into West Africa during June. Reversing the trend mentioned last week, prices may be the lowest theyve been for some time, with Group I neutrals between $1020-$1045/t from all European sources and bright stock around $1180/t, all basis CFR Nigerian ports.

Group II/III
European Group II prices have moved a tad since last week, reflecting the sentiment for Group I material. Some grades have been priced down to maintain a Group II presence with blenders, although many blenders are locked into a supply of Group II grades with formulated finished lubes. However, buyers do have a choice of distributors all vying for market share of all these grades.

A larger price range than what was previously considered has been established for Group II grades within Europe, between $1110-$1185/t for light vis material and $1245-$1335/t for heavier vis material 500N and 600N.

In the Middle East, June prices have been announced between $1035-$1065/t for 150N and around $1130-$1155/t for 500N and 600N. Prices have come under substantial pressure, with many receivers flatly refusing to accept offers made during May for June supplies. With price dips for Far East sources, buyers have held out for substantial discounts eventually conceded by suppliers.

Group III prices within the European arena are facing increased pressure, with many buyers requesting downward adjustments to their current prices. Levels are confirmed between 930-945/t, down around 10/t from last month, and with price pressure continuing.

One 4,300 ton cargo of Group III European production is being moved from Ploce, in the Adriatic, to UAE. It may not match Group III international standards, but will be sufficient for a particular end-use.

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

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