Europe-MidEast-Africa Base Oil Price Report


The EMEA base oil market shows two faces this week: one tells of limited new business, but the other hints at demand for export cargoes and revived arbitrage deals.

API Group I prices within Europe remain static. However, current levels may push export cargoes to the Middle East, west coast of India, and even Far East-routes which had been disregarded due to indigenous and alternative sources offering lower prices.

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Dated Brent fluctuated slightly, but is now $105.60 per barrel. ICE gas oil front month prices spiked to recent highs at nearly $900 per metric ton before reverting to $892/t in mid-week trading. With relatively higher selling prices and lower production costs, distillates and diesel in particular are maintaining the constant alternative product pressure and generating much higher realizations than base oils.

Whilst refiners can tolerate this scenario for short terms, the continued discrepancy between base oils and gas oil will continue to pile pressure on producers to either increase base oil prices despite a poor demand cycle, or to decrease or entirely discontinue base oil production. Certain European producers confirmed this week that they are considering totally removing Group I from refined products despite the consequences.

European Group I FOB offers are slightly higher than last weeks, and its possible that levels will start to rise again should avails become constrained. Light solvent neutrals from SN 70 to SN 150 are $945-$975/t, with the heavier vis grades such as SN 500 and SN 600 between $990-$1020/t, slightly higher than last week due to tight supply, with bright stock increasing by around $20/t due to lack of sizeable avails.

Bright stock is now $1095-$1120/t. Two bright stock parcels have been purchased for the Egyptian General Petroleum Corp. contract: 2,500 tons from Livorno, and 3,000 from Algeciras, which will possibly include 2,500 tons of bright stock topped off with another heavy neutral grade.

Tight avails have not affected local Group I prices, since most of this business is contracted at least on a monthly offtake basis. Prices are locked until month-end, and only then might July barrels see increments. Due to small increases to sea-going cargoes, differentials between export cargo and local selling levels have increased to 90-110/t over export levels.

Baltic and Black Seas
Baltic suppliers have recognized that further discounting is not necessary, since tightening in mainland Europe affords more scope to move material. No new deep-sea parcels have been identified since last week, but a 2,500 ton parcel is marked to be delivered to Antwerp-Rotterdam-Amsterdam, where Benelux blenders will receive some or all of this cargo.

With no offers accepted this week, SN 150 remains at $925-$940/t. But with mainland numbers moving up on SN 500, Baltic offers increased around $10/t to $950-$970/t.

SN 900 has been offered at higher levels in response to traders interested in taking large quantities of it to West Africa. FOB levels have been heard this week at $1020-$1035/t for large parcels.

Black Sea trade is still almost unfathomable, with many Turkish buyers absent, awaiting civil disturbances to die down. Offers have been made to Turkish receivers, however, and Uzbek SN 150 has been quoted at $920 CIF, which is a reversal of last weeks price increases caused by increasing freight levels. That said, Russian SN 150 and SN 500 is still offered higher, at $950-$960/t CIF Gebze. This is why the Black Sea market is currently difficult to evaluate.

One 8,000 ton parcel ex Theodosia has been identified as being worked for west coast of India receivers.

Middle East
Near Middle East and North African regions maintain a zero import regime for Syria and even Lebanon, with a few smaller cargoes being nominated for Tunisia and Red Sea discharge, loading ex Livorno in the Mediterranean. One other import into Morocco has been identified from Rotterdam, but this is not necessarily confirmed as Group I.

Saudi Arabian suppliers are trying to move a combination cargo of around 9,000 tons from Jeddah to Jebel Ali, UAE, following another 7,000 tons presumably shipped to other receivers in the Emirates. Receivers in UAE have confirmed levels of $1035-$1065/t for the two grades of Group I solvent neutrals, with bright stock between $1155 -$1170/t.

Other Middle East Gulf trades include 1,700 tons loading out of Karachi for Hamriya, UAE, along with a 7,900 ton cargo of Group II from Ulsan, accompanied by a 2,000 ton parcel into Hamriyah from Chennai, India. In the other direction are Group III cargoes from Bahrain bound for west coast India, along with a large slug of Iranian SN 500 being shipped directly from Bushehr, Iran, to Mumbai anchorage.

The 5,000 ton cargo of SN 500 is reputedly being sold CFR at $1055/t, which would confirm reports of lowered Iranian prices of $965-$980/t. This reinforces traders decision to re-export 4,000 tons of this grade from UAE to Port Kelang storage. Iranian prices dipped $25-$30/t this week, which may close any arbitrage for European barrels to reach Middle East Gulf markets, particularly if the European market goes short and prices rise.

East African buyers have issued a number of enquiries, mostly for imports in flexies. Rumors of a bulk requirement for Dar-es-Salaam remain unconfirmed. Mombasa receivers are considering alternative supplies to UAE barrels, and SN 500 from Black Sea or Baltic may have been offered below $1100/t.

South African Group I business has been confined to local supplies and some flexies from UAE imported through Durban port. Prices for these supplies from UAE will have dropped in the last few days, possibly enticing buyers to return to importing rather than entertaining locally-produced material. Specifications will be lower, but this material can still be used either blended or for lower-quality finished lubes. Prices landed CIF Durban will now be around $1145/t.

Many Nigerian receivers have been striving to complete negotiations for additional cargoes arriving in July. Perhaps they are starting to realize that the European mainstream market may be firming, bringing with it Baltic supplies, which so many rely on to achieve competitive landed prices.

Offers for landed prices are forecasted slightly higher from one week ago, with avails starting to tighten and alternative material perhaps starting to firm. CFR levels are estimated to rise by $20-$30/t to produce landed numbers around $1050-$1115/t for the full range of SN 150 through SN 600.

Bright stock will now be offered at $1180-$1195/t for delivery into Nigerian ports. SN 900 ex Baltic offers have been reported at $1110/t, more than $100/t higher than material landed into Lagos around one month ago.

Group II/III
Group II distributors and importers within Europe are receiving good news: Group I is leveling and possibly starting to climb, and supply might go short. Furthermore, holding prices static this week will bolster Group IIs market position.

With no existing European Group I facility being converted to produce Group II yet, importers must think the market is theirs for the taking, as long as remaining Group I avails can continue to compete.

Prices are unaltered this week, but levels will likely begin rising. Light vis 150N and 220N are $1105-$1165/t and higher vis 500N and 600N are $1225-$1295/t, all basis ex tank.

The Group II picture is similar in the Middle East Gulf, considering the aforementioned large Korean parcel underway for July arrival. With all the turnarounds and production cutbacks in the Far East, the few remaining suppliers with spot barrels to sell are pushing to lift prices, and offers this week confirm that picture. Light vis is now $1065-$1090/t, and heavy material is $1165-$1185/t, all basis CFR / CIF southern Middle East Gulf ports. Much of the Group II supply into this region is loosely contracted, and cannot be described as spot business.

Considering the glut of European Group III material, its difficult for producers and importers to find a niche, especially considering the rumors about Group I and the subsequent progress of Group II. Levels have come under pressure again, slipping to new lows of 905-920/t for both 4 cSt and 6 cSt grades.

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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