EMEA Base Oil Price Report


With summer concluding, many buyers are scouring the EMEA market for all three groups of base oils.

While API Group II and Group III is freely available, Group I seems tight in some areas such as mainland Europe. Despite short supply, prices are rising and many buyers are unable to cover their requirements, causing what can only be described as a mild panic in the Europe, Middle East, and Africa base oil market.

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Some receivers are looking to South America for interim relief, but FOB prices have moved upwards, making export sales extremely difficult. With Russian prices escalating due to duty increases and short supply, not even Baltic exports are an option.

Producers who have cut runs to a minimum express no intention of increasing production, especially of Group I, and opt instead to focus on higher-contribution products such as diesel fuels.

Crude has seen the highest levels for some months with Dated Brent upping to over $114 per barrel. This follows gas attacks in Syria last week and protests in Libya, which drive exports down to lows only seen during the Libyan uprising. ICE gas oil front month futures are trading around $963 per metric ton, up some $21/t.

Group I producers in Europe declared that base oil prices will rise commensurate with hikes in crude and other petroleum products, providing the platform for future sales. A take it or leave it scene is evolving for selling whatever is available in tank. Some sellers are making what might be construed as completely off-the-chart offers, but which may be the new reality as crude rises. Citing buyer loyalty and commitment, some are content to sell at lower levels.

Light solvent neutral grades are now pitched between $985-$1030/t whilst heavier grades such as SN 500/600 moved to $1020-$1065/t. Bright stock has also responded to price pressures, climbing to new highs of $1110-$1175/t.

This refers to offered prices heard this week from some, but not all sellers.

FOB prices refer to offers and current sales of base oils supplied ex mainstream sources within Europe and northern Africa, per availability and sellers willingness. There are cases where sellers are prepared to retain material in tank, looking for prices to rise before committing. Some are now asking for confirmation of acceptance within hours rather than days.

European local price moves appear to be lagging behind those applied to export cargo-sized parcels, with many suppliers stating they will apply increments September 1. Some sellers have notified blenders that prices will increase by some 50-85/t next month, with no promises of deliveries other than contracted volumes prior to September 1. Buyers who have been postponing topping up until after the summer may well pay for the delay.

Baltic & Black Seas
Baltic sales of Russian and Belarus base oils have been sporadic. Some distributors have tried to beat the still-unconfirmed Russian export duty increase. Levels are rumored to rise for all petroleum exports by some 5.5 percent w.e.f. September. Buyers and traders all talk about increase but apparently refineries havent received communication from government sources. Notices of duty change are normally posted by the 20th.

Traders with material in tank have been closely watching European mainstream prices, and are matching offers for SN150, SN 500 and SN 900. Some offers have been posted between $1015-$1040/t for the two main grades, and around $1075/t for SN 900, of which large qualities are in short supply.

Black Sea reports base oils offered out of Turkey, where net imports are the norm. There may be material in tank which could have been designated for uses other than blendstock, hence some traders, having seen prices moving upwards, may be keen to move these supplies out from storage at a margin.

Generally, Russian prices for SN 150 and SN 500 have risen due to increasing supply costs and not because of demand, which remains relatively low. Levels are now over $1000/t basis CIF Turkish ports, with Uzbek SN 150 creeping closer at $970-$980/t CIF. The increases have kept Turkish buyers out of the market, whilst some Turkish blenders may be tempted to look at Group II, which is becoming more available while remaining competitive against Group I.

Middle East
With the situation in Syria impinging on Lebanon and Jordan, and with ongoing civil unrest in Egypt, there is little to report on base oils in this region. With normal trade increasingly difficult, even the sporadic blending activity for finished lubes is threatened.

Red Sea avails are offered for import into Far East where the arbitrage remains open with relatively short Group I supply. Prices are moving upwards in line with Europe, with solvent neutrals loaded FOB between $1015-$1045/t, and bright stock around $1155/t.

Middle East Gulf sources indicate that Iranian exports have receded to almost zero, and any material sold FOB basis is below $800/t equivalent, so low that producers would rather put the material back into the cracker than sell.

The main outlet markets for Iranian SN 500 have faded with the Indian currency collapse, and also re-exporters in the United Arab Emirates have turned away from dealing with Iranian base oils due to the difficulties in re-selling.

Imports into Middle East Gulf receivers have arrived from Yanbu and Jeddah, with 13,000 tons of mixed grade cargo due to discharge next week. Other smaller Group I imports have been noted going into Qatar and Bahrain with private blenders in Kuwait making enquiries for recycled base oils along with some Iranian SN 500.

Blenders in U.A.E. are considering the quantum move to Group II with bright stock retained only for blending marine lubricants. This move may make economic and strategic sense. With future avails of Group I perhaps reaching critical levels, Group II production is being ramped up in the Far East over the next few years, yielding plentiful supply.

Buyers in eastern Africa have been relatively subdued over the last few weeks with reports of only small parcels of Group I into Mombasa. These imports appear to be the remnants of the Iranian re-exports from U.A.E. along with recycled material from India. Prices have increased for these supplies, even with Iranian levels dipping to new lows. CIF levels are now around $1155/t for Group I SN 500.

Western Africa has been in the throes of the Ghana base oil tender which is expected to be retained by the incumbent supplier. Nigerian business has been subdued with ultimate realization hitting the market that prices are moving north, and that target levels requested by receivers in Nigeria cannot be met. The increases to delivered levels may stretch some of the less well-funded receivers looking for smaller cargo quantities or shared parcels which can be divided between receivers.

Offers are now $1075-$1120/t for Group I solvent neutrals up to SN 600, with bright stock levied at $1200-$1235/t, all on delivered basis CFR Apapa port.

Baltic loaded grades will not be dissimilar for SN 150 and SN 500, with SN 900 pitched around $1150/t same basis. There are uncorroborated rumors in Lagos that one offer has been received for some $122/t lower. This 10,600 ton cargo is apparently on the water, and will be delivered at those prices during first half of September.

Group II/III
Many in Europe are considering converting to Group II, due to a number of factors including uncertainty surrounding the future of Group I, which will not be reintroduced into production unless economic returns are satisfactory. Many new formulations involve the use of Group II to enable blenders to manufacture finished lubes within budget.

With no confirmed major Group II facility within European mainland and only small production of Group II in locations such as Poland, it would appear that Europe could transform into a net importer of base oils from Far East and U.S. In the ultra-conservative European market, it may take some time for this to evolve. In the meantime, Group II has to seize the opportunity to make inroads in the EMEA base oil markets.

Group II within mainland Europe is now between $1120-$1150/t for 150N and 220N, and $1220-$1265/t for 500N and 600N.

Middle East Gulf offers for Group II cargoes have been discussed at index-linked levels of $1080/t for light vis grades and $1190/t for 600N, all basis CIF Middle East Gulf ports. These have been turned down by receivers, with one buyer countering at some $30/t lower. Far East prices are rising fast in a tight market, and the offer is deemed to be around September / October numbers. The offer has reportedly been linked to a new pricing report which includes global Group II prices; on this occasion the indexing being Asian Group II levels plus a freight element.

Prices for European Group III are unaltered, at 940-965/t for both 4 cSt and 6 cSt. Buyers are indicating that they will be looking for replenishment over the next few weeks, but whilst this will not create huge demand it might take the edge off the oversupply situation.

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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