EMEA Base Oil Price Report


With sellers seemingly unconcerned about sales and buyers unrushed to procure before the holidays, the market is almost frozen.

Demand within the Europe-Middle East and Africa base oil market is weak to flat with few new moves announced this week. As usual, western Africa and west coast of India have been noted as possible destinations for parcels out of the Baltic and Mediterranean respectively, with a further enquiry for some 5,000 tons out of the Black Sea to United Arab Emirates. The jury is out on how the economics work on the latter cargo, with local Iranian supplies losing more ground on prices due to lack of demand.

Talk of the week is of the mini-surge in crude prices follower lower U.S. inventories. Dated Brent has traded above $109.50 per barrel on Tuesday, but fell back around $109 by close of business, a $2 over one week ago. As another barometer, ICE gas oil front month settlement shows around $922 per metric ton, up some $15 over last week. As a feedstock, VGO is back in demand on both sides of the Atlantic leading to a strengthening in values.

This round of crude and petroleum increases will only harden many base oil producers resolve to up prices, but with lacking demand it may be very difficult. Cutting production further is an unlikely option-with many API Group I units on the cusp of outgoing base oil, it is going to be even more difficult to cut back further without dropping to unworkable prices.

The other option is to pull out of Group I production altogether, which some refiners in Europe are already considering.

Group I prices are becoming more and more difficult to encapsulate into tight meaningful ranges with some suppliers willing to discount particular grades at specific times, whilst others are holding out to obtain their established selling prices before material flows from their storage.

The result is widening ranges for all Group I grades, with light solvent neutrals now between $955-$975/t -the lower end increasing by $10-$15/t and the higher end maintained. The heavier neutrals such as SN 500 have been more in demand for export cargoes, and this has kept the prices higher at $980-$1000/t, similar to last weeks levels. Demand for bright stock seems to have fallen off perhaps with the Egyptian General Petroleum Corporation tender going into hiatus, and demand from western Africa somewhat sated after the last couple of months of imports. Bright stock offers are now a little lower than recent levels, in a $1075-$1095/t spread.

The above prices refer to FOB offers and sales of Group I ex mainstream supply points in Europe and northern Africa, where availabilities permit.

A number of suppliers are expressing disappointment, as European mainland local prices for Group I base stocks are unchanged. Mediterranean demand in particular has slumped to an all-time low, with few opportunities for growth coming from Greece, Italy and the Iberian Peninsula.

Euro prices remain suppressed, with levels maintaining a positive differential against export numbers at around 60-80/t, which probably just covers the extra costs involved in servicing domestic supplies, such as storage, delivery and handling.

Baltic & Black Seas
Baltic trade has been slow with many players saying they dont have much available material. Most are awaiting replenishment stocks which will be in tank for FOB sales during August. One parcel of 6,000-11,000 tons is being considered from Baltic supply points for either Middle East Gulf or west coast of India, but with current FOB prices from most of the distribution points in the Baltic standing up to buyer pressure, the economics of this movement are unclear. However if FOB levels are similar to those applied to a western Africa cargo where netted back numbers for SN 500 and SN 900 FOB would have meant loading around $920/t and $930/t or lower, then this movement may be economically possible, particularly for the SN 900 grade. Routine pricing is yielding offers around $940/t for SN 150 and some $15 higher for SN 500. Offers for small quantities of SN 900 are $885-$1000/t, meaning last weeks reported prices may have been too high.

Black Sea trade has only seen two offers for 3,000 tons each of SN 150-or Uzbek equivalent in one case-at around $965/t for the Russian material for July and $925/t for Fergana base oil to be delivered first half of August. Both are basis CIF Gebze.

Another 5,000 ton parcel is loading from Theodosia for shipment to Hamriyah, U.A.E., presumably consisting of SN 500, perhaps with a smaller quantity of SN 150 to aid the freight costs.

Although Turkish buyers have been absent from the market for the last few weeks, many suppliers have had little or no material to offer for July at any rate. This market is not really expected to revive until September, after the holidays.

Turkish blenders are showing interest in starting re-refining operations. This could yield a new source of light vis blend stock within Turkey that could fulfill a number of purposes.

Middle East
With Ramadan now fully underway in the Middle East and other Muslim countries, business has slowed to a near halt.

Near Middle East remains gripped by civil problems with reports of one small cargo bound for Alexandria. One such a parcel from northwest Europe is only 1350 metric tons, which may reflect either the local situation for receiving bright stock or the ability to fund these purchases through central government. In the meantime, no new enquiries have emanated from Red Sea buyers, although one loading of 4,000 tons out of Jeddah destined for Sharjah, U.A.E. is reported as term contract business.

Middle East Gulf Group I prices are almost two-tiered, with Iranian SN 500 prices dipping further mainly due to low demand. The Saudi Arabian material carries better specifications then Iranian or Black Sea imports, so is priced higher on the basis of $985-$1025/t for Group I neutrals, with bright stock being delivered CIF/CFR U.A.E. at around $1150/t. Some blenders are bound by formulation to use only approved base oils for blending certain lubes, and thus must purchase from acceptable sources, some of the closest being Yanbu and Jeddah.

Prices for Iranian barrels have sunk to new lows with reported FOB levels between $850-$865/t for the quantities of SN 500 available out of BIK and Bandar Bushehr. Other grades such as SN 150 and SN 650 have not been mentioned in comments received, perhaps alluding to a shortage of these two grades for export. Re-exported SN 500 out of U.A.E. is still being offered around $1000-$1025/t FOB, but two traders were prepared this week to these levels discounts to move stock out of tank.

The Middle East Gulf sees continuing Sitra exports to Mumbai for 4,000 ton Group III parcels for late July or early August arrival.

Eastern African and South African import trade remains relatively quiet with locally supplied material from South African refineries taking up a lot of the slack for base oil requirements. Some flexies in containers have been filtering into Durban due to the attractive prices for Iranian barrels out of U.A.E. Levels have been reported around $1155/t.

Western Africa remains quiet with no reports of any cargo arrivals this week. With the exception of the peculiarly low-priced Baltic import last week, prices are deemed stable, between $1030-$1085/t for solvent neutrals coupled with bright stock around $1155-$1175/t CFR Lagos. Baltic SN 900 may now be little lower after recent imports and is assessed landed into Nigerian ports at $1025-$1045/t.

Group II/III
Reports of growing European Group II business have been confirmed by importers and their distributors and with the addition of new storage space being taken by U.S. importers in the west coast of the U.K., the markets of northwestern Europe are specifically identified as new sales ground for Group II imports. Upon the opening of a new facility in the U.S. Gulf Coast at Pascagoula later this year will bring a large emphasis on imported Group II being pushed within Europe.

With Group I production notably waning, the expectation is that within five years, Group II will have taken over a large share of the European base oil market with or without the adoption of indigenous production. The feeling of current suppliers is that European Group II production is not required and that supply from global refineries will be more than enough to meet requirements. Rumors that some majors within Europe will cut Group I from the slate and replace it with Group II have not yet been confirmed.

Current prices for European imported Group II remain between $1065-$1110/t for 150N and 220N and $1140-$1225/t for higher vis grades.

In the second week of Ramadan, Middle East Gulf Group II business is subdued and most receivers and traders indicated that business wont fully revive until September. Prices are therefore quoted on a notional basis and will remain the same until trade recommences. Levels are reported as follows: Light vis landing at $1045-$1095/t, and heavier vis imported around $1135-$1185/t.

European Group III supply remains an enigma with producers and suppliers unable to arouse any real buying interest from blenders with mainland Europe. Levels for 4 cSt and 6 cSt remain at 905-920/t ex tank.

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

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