EMEA Base Oil Price Report

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With a quiet trading week, the ACI conference taking place in Budapest this week and crude oil prices falling back from recent highs, EMEA base oil prices are flat-lining.

Dated Brent crude oil has fallen back around $107.75 per barrel, down $4 this week, after U.S strike action against Syria was curtailed. Petroleum product prices have also dipped, with ICE gas oil trading around $920 per metric ton for front month settlement, falling some $40/t over the past week.

API Group I sellers are concerned that many of the arbitrage areas which can soak up demand when markets are depressed are closed to European trade. Even with production cutbacks, refiners within Europe are worried about moving base oils during the rest of this year.

European Group l prices are similar to last weeks, with an added degree of weakness creeping into the higher ends of the ranges. Light solvent neutrals are $995-$1020/t, with heavier grades such as SN 500 steady at $1025-$1055/t. Bright stock is freely available in the market in varying quantities and is being offered this week from $1090 to around $1155/t.

These prices refer to FOB offers and sales from mainstream suppliers in mainland Europe and North Africa, where availability allows these transactions to take place.

Local demand within Europe is subdued; the forecast surge in purchases after the summer break did not happen. Sellers are trying to encourage sales of material which has been in tank for some weeks. Some buyers expect prices to fall, and they are content to wait. Increases which were notified at the beginning of this month have not lifted prices to new levels, and in some cases there has been a degree of price erosion, particularly for some of the light Group l grades.

The gap between local domestic prices and cargo export numbers is now around 55-85/t, reflecting poor demand from both export and domestic markets.

Baltic and Black Seas
Baltic sellers express frustration with buyers showing little interest even in large parcels for areas such as West Africa. Cargoes talked about last week are still on the negotiating table, with receivers determined that prices are coming down.

Smaller parcels for Northwest Europe and U.K. are also sidelined, waiting for what buyers consider more realistic levels for base oils. Offers are around $980-$1015/t for the two main grades, SN 150 and SN 500, with SN 900 in small quantities offered around $1090/t. Larger quantities of this grade and other heavy cuts such as SN 1200 are around $1110/t.

Some distributors in Baltic ports have suggested that with the market being dull, they have not been replenishing stocks from FCA sales from Russian refineries. Sellers denied that this was the result of export duty increases. One source commented that Russian export duties might go down next month, with Urals crude values falling, bringing back base oil prices last heard in this market a month ago.

Black Sea fortunes are following a similar path with low demand from the main Turkish players; only a handful of cargoes completed during September. Prices are believed to have weakened, with SN 150 and SN 500 from Russian sources at $955-$985/t FOB, and SN 150 from Fergana around $965/t CIF northern Turkish ports.

Middle East
Near Middle East markets are in turmoil as the Syrian civil war affects the area. Egyptian imports of base oil have dropped significantly, and local production from Alexandria has dropped for domestic use and for the small export market for these grades.

Red Sea sources are still keen to sell material outside the immediate region, but many of the arbitrages are closed. For example sales into Far Eastern markets are limited and receivers in Yemen, Oman and UAE are being served directly by the Saudi Arabian producer.

Middle East Gulf Group l requirements are mainly for bright stock, and with Iranian material being sold ex BIK at extremely low levels, around $800/t, receivers in UAE are finding more than enough local products at very low prices. There was a rumour of some lower quality Iranian bright stock being offered for sale, but availability of such material could not be substantiated. Prices for imported bright stock into UAE are around $1100/t, making it difficult to supply western-origin material into this area.

Africa
East African sources claim that exports from Thailand have been filtering into this market. These oils may be arriving in flexies as does most of the material entering the ports of Mombasa, Beira, and Maputo, sourced from Middle East Gulf locations such as UAE and Bahrain.

Prices for Middle East Gulf-sourced SN 500 is now around $1125/t basis CIF, with recycled grades in drums landing around $985/t.

South Africa reports imported SN 500 is still arriving into the country through Durban port. Sources say a number of new licences for blending installations are being approved for various locations, to serve mining and agricultural industries. It is intended that locally produced base oils will be used in these plants.

West African buyers have almost totally removed themselves from the base oil scene; planned cargoes from Europe have all been delayed or deferred. Buyers in West Africa indicate that higher prices cannot be assimilated into the local markets, and blenders are refusing to pay higher numbers for base stocks.

Nigerian receivers claim that base oil levels will fall during the next few weeks. This may indeed be the case, but when asked what will happen to supplies in the market during this period, traders within Nigeria indicated that the market would go short and that production of finished lubricants might cease until prices for base oil were deemed acceptable.

Realistically, Nigerian levels are around $1055-$1095/t for the range of neutrals, with the exception of SN 900 at about $1135/t and bright stock at $1185-$1200/t. All prices are on the basis of CFR Nigerian main ports.

These offers have a long way to fall to reach target levels expressed by Nigerian receivers. Traders selling into this market guess that somewhere along the pricing continuum agreement will be reached.

Group II/III
Prices for Group II imported into European hubs have stabilised. With Far East production ramping up, the market may become longer. U.S. production will receive a boost most likely during Q1 2014 with Chevrons large production unit being commissioned in Mississippi.

Prices for the main imported grades are $1090-$1155/t for the light vis range, with heavier vis 500N and 600N grades priced between $1185-$1255/t.

Middle East Gulf sources report that Far East Group II sellers tried to push prices some $10/t higher for October deliveries, but these increases have largely been refused. Levels are $1065-$1080 for the light vis grade such as 150N and 220N, with heavier grades 500N and 600N landed CIF between $1150-$1165/t.

European mainland Group III price levels have consolidated around $10/t higher than last week. Sellers say it is becoming easier to sell these grades but more difficult to get the prices back to where they would ideally want them to be. Until then levels are between 960-985/t.

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

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