Europe-MidEast-Africa Base Oil Price Report


The Group I supply scene is more muddled this week. Some sellers say production cutbacks and unacceptably low netbacks are limiting avails, while others report that they are going long with large unsold inventories.

Meanwhile, buyers exacerbate this by talking prices down, causing sellers to lose interest in negotiation and to turn instead to those to whom they can offload any available material.

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Short supplies may spur slightly rising prices, whilst prices for sellers with ample stocks to supply to both export and local markets are under pressure. Some major producers that are running short are reportedly taking steps to procure from other wise competing suppliers.

Some players have hinted that parties are conducting private and confidential lower-than-normal deals, but reporting these levels would be inexact, since the numbers are not being disclosed to the general market, and may not be repeated to other counterparties.

Dated Brent staggered around $103.70 per barrel, only up around $2. A number of blue chip forecasts for both 2013 and 2014 predict pressure that may push Dated Brent to below $100 again for some time. ICE gas oil has shown marginal strength by moving up around $10 per metric ton for front month settlement around $878/t at close of business Tuesday.

The prices are the most prevalent in the market, although theres silent cognizance of lower numbers.

Levels are marginally lower than last week. Group I light solvent neutrals are held between $945-975/t, but heavier mid vis material such as SN 500 and SN 600 is now $990-$1010/t. Bright stock prices appear to be holding up due to improving demand, now $1095-$1135/t depending on quantity and location. Northwest European producers are being pushed to accept lower FOB numbers, due to comparatively higher freight costs than those of Mediterranean and Atlantic suppliers.

The above FOB prices refer to offers and sales of Group I base oils ex European mainland and North African production units where availability of the various grades exists.

Local European prices are under pressure again from alternative supply points in Eastern Europe and the Baltic. Also Group II offers particularly for the light vis grades are being seen as aggressive against Group I neutrals, and suppliers are under pressure once again to narrow the differential between local selling levels and export sales.

However, many European blenders will be using the holiday season to perform servicing and maintenance on their blending and filling lines, with the result of lower base oil inventories during this period.

The differential between local domestic prices for Group I and exports levels applied to cargoes has decreased, and is now estimated at 70-90/t for Group I.

Baltic and Black Seas
Baltic supplies have receded, but its not clear whether this is due to lower demand or lack of inventory from Russian and Belarus. Theres an apparent hiatus in cargoes being sought for West Africa with only one prompt 9,000 ton parcel for Lagos being worked from Baltic ports.

Prices have remained at $930-$940/t for SN 150 offered FOB and $955-$965/t for SN 500, which has been almost static for the past month, perhaps indicating that at least one aspect of Group I is stable. SN 900, which is being loaded as part of the aforementioned parcel, is offered at $1020-$1035/t.

Black Sea trade has been thin with most Turkish buyers still absent. Istanbul commenters say that major buying will recommence in Q3. Meanwhile, the few enquiries circulating are looking for offers of $850-$880/t basis CIF Gebze, which the regions supply traders declared impossibly low. Realistic levels are $925-$940/t for Uzbek SN 100 and SN 150 grades. Higher quality Russian counterparts are higher at $950-$960/t CIF.

One 8,500 ton cargo of mixed grades from Brazil could be interesting, possibly loaded for discharge into West Africa and also Turkey. Quantities are not yet disclosed, but its possible that around 5,000 tons will go to Nigeria, and the rest to Turkish importers. Pricing is not available at this time, but if landed numbers are to compete with Russian and Uzbek supplies, and taking account of freight, FOB levels may be as low as $865-$880/t for Group I solvent neutral grades.

Middle East
Egypts political protests and Syria and Lebanons civil wars are having grave effects for all types of businesses in Near Middle East regions, including the production of finished lubricants and the purchasing of base oils. Local demand is hugely affected, and whether normality will ever be regained remains to be seen. These countries were all large importers of base oils from refineries in the Mediterranean and Red Sea, and lack of activity has affected the demand cycles of these supply points.

Middle East Gulf activity will be slowing down. Ramadan starts on July 9 and this coincides with the hottest time of the year in these parts, when many choose to leave the region. One 5,000 ton cargo of Iranian-origin SN 500 has been arranged through UAE traders for the west coast of India, and simultaneously, a shipping enquiry has been noticed for 6,000 tons of base oil from Yanbu to Hamriyah in U.A.E. on a prompt basis.

Iranian export prices are still estimated at $865-$880/t basis FIB Bandar Bushehr, but these cargoes are being transacted in local currencies or cash, so estimation is as good as it gets. FOB sales in bulk ex U.A.E. ports are $1025-$1040/t for SN 500 which may be Iranian-origin or blended base oils using Pakistani input from 1,700 tons moving into Hamriyah from Karachi.

Kuwaiti blenders are looking for virgin SN 500 and recycled base oils in flexies or drums.

This regions exports continue to grow with yet another 4,000 ton Group IIl cargo from Bahrain to Mumbai during the second half of July.

East African receivers are also looking for recycled material for lower-spec finished products, with the prime supply point in Bahrain. Prices for recycled base oils are some $125/t lower than for virgin base stocks, and with new V-MAT technology from Hong Kong these oils can be safely used to provide low-cost blend stocks in secondary world markets.

Durban SN 500 imports continue around $1180/t basis CIF, continuing to compete with locally-available truck supplies of Group I at $1150-$1175/t for SN 150 and $1225-$1240/t for SN 500. Bright stock is being offered around $1300/t which could open up the arbitrage for European material to be imported again into South Africa.

Nigeria has imported some 60,000 of base oils over the last five weeks and with the country poised to accept more large quantities from the Baltic, mainland Europe and the U.S., this may be a record year for base oil imports. Receivers and blenders complain that import tariffs are punitive and apply to both imported finished lubes and base oils, causing base oils to be negatively casted against finished products imports.

Base stocks landed into Nigerian ports remain assessed at $1030-$1085/t for Group I neutral and between $1155-$1175/t CFR Lagos for bright stock. Imports of SN 900 from Baltic will now be around $1090/t landed.

In addition to the 13,000 ton parcel being loaded out of the U.S. Gulf Coast, another 5,000 ton cargo is being scheduled ex U.S. Atlantic Coast for West Africa. It is thought that this cargo will be entirely bright stock.

Group II/III
No major changes to Group II within Europe this week, although a number of blenders say they have received notices of revised prices w.e.f. July 1. These revisions are to discount the light vis grades, keeping the higher vis material more or less in line with existing prices. Offers are being made to increase volumes of these grades with incentives being made depending on quantities lifted. Prices are revised slightly with light vis material 150N and 220N being sold ex tank at $1095-$1135/t, with the higher vis grades 500N and 600N between $1220-$1275/t.

Group II in the Middle East Gulf remains relatively tight, with only contracted volumes offered for July and August deliveries. This does not appear to concern many receivers, since Ramadan and the holiday season may slow down blending activity until September.

July and August prices are up slightly to $1075-$1095/t for light vis grades, and $1175-$1190/t for 500N and 600N landed.

Group III grades in Europe are in storage at an all-time high, according to one major local supplier. Prices have remained stable over the June month-end, and are not indicated to have slipped further for early July deliveries, remaining at 905-920/t for 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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