EMEA Base Oil Price Report


The EMEA base oil market appears to be changing direction slightly. Conscious of ever-growing optional supply sources and the unprecedented ingress of API Group II and Group III base oils, producers and marketers of Group I are desperate to retain market share.

This is affecting the availability for large sea going export cargoes throughout Europe, the Middle East, and Africa. With reduced production levels, local markets are seen as a priority, where higher realizations and netbacks can be achieved for similar effort.

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That said, export destinations such as the west coast of India, the Middle East Gulf, and South America where Group I grades are still required are all now being supplied with either indigenous or at least more local supplies.

Where transactions have actually taken place within the reducing Group I export markets, prices have stabilized. But given options to supply to local markets, suppliers are unwilling to discount any marginal material which might find its way to an export sale.

Against a background of relatively stable crude and petroleum product price levels, base oils are under no pressure to move in either direction, since after the last round of increases applied by source suppliers of all types of base oils in U.S. and Far East, values have stayed within narrow ranges. Currently Europe appears to be following a trend rather than setting its own agenda.

Dated Brent is as it was last week, around $110.25 per barrel in Tuesday afternoon trading in Europe. West Texas Intermediate maintains the crack against DB at around $101 per barrel. ICE gas oil is only a couple of points adrift from last weeks levels at $939 per metric ton for front month settlement, now December for products.

Group I prices for the few FOB sales from mainstream European supply points remain firmly unchanged from last week, with light solvent neutral grades between $990-$1020/t. Heavier vis grades are offered between $1010-$1035/t. Bright stock is available in large quantities but with few interested buyers at $1085-$1100/t offered.

This static market is doing nothing to help move material, with buyers commenting that they expect prices to dip with the lack of business activity, whilst suppliers are insisting on maximizing coverage of domestic and local markets, thus trying to sell all avails at a common premium.

The local European scene reflects a better prospect for returns on sales of Group I base stocks within this market, carrying a premium of some 70-120/t above offered export levels. Domestic markets have shown some signs of bounce with demand improving for some grades of Group I within northwestern Europe in particular. Demand from the Mediterranean and Eastern European markets still appears subdued compared to former offtake levels, but there are hopes that with many single-currency countries making economic progress, demand may soon pick up.

Baltic & Black Seas
The Baltic markets where Russian and Belarus base oils are re-sold for export have been subdued, with a number of traders chasing the same pieces of business in areas such as West Africa. This has caused confusion as to real demand and prospective prices. But with SN 150 and SN 500 offered at $985-$1010/t, levels are unchanged from last week. Heavier SN 900 is around $1085-$1110/t, but the large quantities available last week appear to have either been sold or withdrawn from export sales, perhaps going into the local Russian markets where better margins may be achieved.

With holidays in the Turkish markets, Black Sea trade is almost non-existent. As for future requirements from Russian and Uzbek supply sources, comments from a few players around this week are that one cargo is again being considered for shipment to the west coast of India and/or United Arab Emirates for some 10,000 tons of mainly Russian SN 500 grade. More information may become available in the next few days.

Prices are somewhat notional but for reporting reasons remain almost identical to last weeks, with CIF indications for SN 150 and SN 500 between $975-$985/t, and Uzbek SN 150 indicated at $955/t, all basis CIF main northern Turkish ports.

There is no reported activity in Syria or Lebanon, and few confirmed deals into or out of Egypt and Israel. Red Sea Group I sales out of Yanbu and Jeddah continue with two future cargoes for receivers in U.A.E. and Oman.

Middle East
Sources commented that business is brisk in the Middle East Gulf, with a large Group I commitment still in place among many local blenders and traders. The conference held in Dubai last week raised some interesting comments and questions from local players regarding the future of Group I in the region, with some skeptics maintaining that these grades could be almost redundant by 2025.

Iranian material is being revived, with two parcels available for shipment from BIK over the next few weeks. Indian receivers are looking at these parcels since FOB prices are assessed at $910-$925/t, and taking account of transshipment and storage in U.A.E., these parcels, mainly consisting of SN 500, could be landed into Mumbai anchorage at $965-$980/t depending on size of parcel for shipment.

These levels could also be appealing to local blenders not requiring the Saudi quality, for own-brand and third party-tolled finished lubes. Availabilities of Group I from Thailand have also interested some U.A.E. receivers, but no cargoes have yet been declared. Estimates for prices delivered U.A.E. for these grades are around $1050/t in respect of SN 150, with SN 500 some $100 higher at around $1140-$1155/t, and bright stock being sold CIF between $1235-$1260/t. The interest in bright stock and perhaps SN 150 with a higher quality may be the real driving interest in these products.

Iranian SN 500 is also set for receivers in East Africa who have become almost reliant on this source for affordable stocks of base oils. Were the source to change to Far East, or even Europe, the levels would have to increase by more than $100/t, making imports very much more expensive and yielding unaffordable finished lubricants prices in some of the more remote markets.

Imports of SN 500 ex U.A.E. are also still filtering into South Africa through Durban at around $1155-$1175/t CIF.

West African trade has been exceptionally thin with a few U.S cargoes of heavy neutrals and bright stock making an appearance in the market. Traders report that Baltic options are being examined for a couple of large shipments to arrive into Nigeria during November, but no conclusive prices or quantities have been disclosed. Receivers in Lagos commented on offers for European material from Mediterranean and northwestern Europe sources which they felt were too high.

Prices into West Africa and Nigeria in particular are estimated to still be in last weeks ranges of $1055-$1095/t for Group I solvent neutral grades. Mainly heavy vis base oils are being imported into these regions, with bright stock delivered at $1165-$1200/t. A lower price substitute for bright stock is SN 900 from the Baltic, but with availabilities uncertain, some receivers are opting for bright stock from the U.S.

Group II/III
Many players expect an influx of Group II production to hit the European markets in mid-2014, from soon-to-be commissioned production facilities from both east and west. With a surge in quantities, the Group II option may prevail.

Prices remain stable after the last round of increases. Light grades are $1090-$1155/t and the higher viscosity, heavier material sold ex tank is between $1185-$1255/t.

Middle East Gulf buyers of Group II appear to have won the first round of suppliers price increase pushes. Resistance has been universal with receivers, mainly in the U.A.E., refusing to accept increases for Group II imports. They commented that supply is starting to go long again in the Far East and that more material will be coming to market than is probably required for the last part of this year and certainly for the first half of 2014.

Even $10-$20/t increments have been thrown out, with buyers declaring that they want to see prices decreasing back into line with local Group III levels.

Offers for November arrival are around $1080-$1110/t for supplies of the light vis grades with the heavy grades at $1165-$1180/t.

European Group III sales are increasing, but demand is still not sufficient to mop up all the extra material on the market. However, with demand starting to move in the right direction, its only a question of time before demand will catch up to availability, sources say. This assumes that no further production of Group III is planned to enter the European arena, and this is certainly not the case. It would appear that there may be a supply imbalance for some time, with new production causing oversupply.

Both 4 cSt and 6 cSt, sold on an ex tank basis either from northwestern European or Mediterranean stocking points, is unchanged at 975-995/t.

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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