Approaching the holiday season, activity is slowing in most base oil markets in Europe, the Middle East and Africa.
The few suppliers still looking to move material by year-end arent looking to sell below cost, which may add a burden on making early January sales. A few players suggested late last week that they would opt to keep stocks in tank rather than screw up the market by selling out at low prices levels.
Rising crude and feedstock levels have also bolstered attitudes against selling base oils at rock bottom levels. Indeed some producers have been actively engaged in trying to move prices higher, and have declared that levels will not remain as they are now come the beginning of January if crude and product prices remain firm.
Dated Brent has retracted a little and currently trades around $109.50 per barrel for front month settlement, some $3 lower than last week. However the range is narrow for crude movement and this is providing steady yet firm background pressure on all petroleum products — including for base oils to sell at higher levels. To further back this up, ICE gas oil futures are now trading around $935 per metric ton, some $30/t higher than a month ago.
API Group I prices within Europe have not seen progressive moves, except in cases where producers have made higher offers for prompt avails in storage. However, as mentioned, sellers are under no pressure to move these stocks. With production levels falling well short of the norm, there is no imminent material requiring storage space.
With sellers attempts to move up, levels for some grades are marginally higher, but light viscosity solvent neutrals are unchanged at $935-$950/t. Offers for heavier grades such as SN 500 are around $10/t higher than last weeks, at around $970-$985/t, reflecting a greater demand.
Bright stock has seen higher offers, but no new deals have been confirmed. Nevertheless, prices are now at $1110-$1135/t, with some trying to push above $1150/t.
Western and Central Europe blenders have virtually ceased local buys. A handful of sales have been made to those looking for contracts commencing in the new year that require base oils and additives to be ready for Januarys first few days. Some Group I users said there a number of government and factory-fill contracts for various locations which have to be delivered during February 2014, and these tranches of finished lubes will have to be blended, tested and packed in January to meet these commitments.
Most report a quiet market with no foreseen price talks in coming weeks. Levels for truck and barge delivered base oils are left around 60-75/t higher than export numbers above.
Baltic and Black Seas
Baltic distributors are perhaps the only sellers in the European Group I market without the luxury of having ample storage to retain stocks over a prolonged period. More Russian material is flowing down the line, with trains arriving to various storage locations almost every day. This means sellers must keep moving material through tanks and must sell base oils at ever lower prices to accommodate ullage needs.
Some reported sales have been exceptionally low, but with a number of distributors trying to distance themselves from these prices, higher levels have been quoted from selective sources. The levels mentioned last week appear to have been confirmed with SN 150 and SN 500 being loaded FOB at around $850-$860/t, but with others offering similar material around $890-$900/t. SN 900 has also been loaded out of one Baltic port higher than previously considered at around $955 basis FCA.
Black Sea trade has been thin with few cargoes of cross-trade. One large parcel has been rumored to be loading during second half of December for west coast of India and/or United Arab Emirates. This parcel is presumably made up of SN 500 with a quantity of SN 150 added to absorb freight costs.
More typically, Russian offers for a SN 500 quantity were heard at $925/t basis delivered CIF Gebze for arrival during December. However, similar parcels of both SN 150 and SN 500 are now rare in the Turkish market, with the lubricant industry apparently realigning itself for 2014. One parcel of spindle oil out of a Spanish Mediterranean port may be destined for Turkish blenders at $20 below market lows.
Middle East
Near Middle East trade has been quiet with few cargos in and out. Egypt remains a market for bright stock cargoes but no new tender has yet been announced. Israeli producers appear to be in balance with no year-end exports or requirements. Red Sea producers out of Saudi Arabia continue to export Group I solvent neutrals to Oman and U.A.E. where markets are buoyant and demand is high for all types of base oil.
Middle East Gulf areas are prolific despite the approaching holiday season when many expats will return home to India and Europe, and with Iranian exports starting to gain favor again with Indian buyers, a number of parcels are being negotiated ex BIK. Prices vary depending on which basis these quantities have been purchased, but a range of $925-$940/t FOB would cover most of the avails of SN 500 coming out of Iran. There are some small parcels of SN 150 and SN 650. With steady demand for SN 150, which is not always readily available in this region, these smaller quantities play an important role in the supply scene in U.A.E. and other Gulf Cooperation Council areas.
Bright stock ex U.S. is being worked as a second cargo into U.A.E. bringing price edge which allows arbitrage to remain open. Far East alternatives such as Thailand and Indonesia are priced higher and more limited. Therefore, U.A.E buyers prefer to look at sustainable supplies ex U.S. Gulf Coast and U.S. Atlantic Coast.
Local Group I prices remain strong in the face of good domestic demand, assessed at $990-$1025/t with bright stock around $1100-$1125/t delivered U.A.E.
Africa
East Africa and South Africa continue to import SN 500 material from U.A.E. sources almost predominantly in flexies, with a small number of receivers in Kenya able to enjoy bulk options for Group I imports. The cargo ex Baltic has yet to arrive into Durban, but local importers are now looking at further supplies whilst FOB levels are depressed. Landed prices for SN 500 and SN 150 are estimated between $1065-$1080/t, slightly lower than last weeks.
West Africa, principally Nigeria and Ghana, has seen large cargoes imported over the last few days with more material arriving into ports such as Apapa over the next three or four weeks. Cargoes are still to be loaded, with an estimate of up to 100,000 tons of base oils possibly arriving into West Africa over 10 weeks. This is because Baltic prices are depressed and traders and receivers are looking to take advantage of these low numbers while they last.
Prices landing into Nigeria for early January are now reputed to be below $1000/t in respect of the SN 150 and SN 500 grades, with SN 900 in large quantities around $1060/t all basis CFR/CIF West Africa ports. Bright stock varies depending on source, but most cargoes will fall between $1125-$1160/t since cargoes ex U.S. will carry additional freight over those loading out of Mediterranean or Euro Atlantic ports.
Group II/III
European Group II levels are unchanged amidst mutterings from some suppliers that prices may have to rise. Prices for January are under review with European importers keeping their options open for price adjustments if necessary. Normal year-end sales do not appear to affect Group II, with most distributors relaxed to have adequate stocks in third party storage or on the high seas arriving after year-end.
Levels are still $1070-$1095/t for light grades such as 150N, with higher viscosity 500N and sometimes 600N grades between $1125-$1180/t.
A similar picture exists for Middle East Gulf Group II with a healthy demand scene and buyers focused on long term supply arrangements rather than looking at spot avails. Receivers used to shop around for the best offer from a raft of different suppliers from Far East, but strangely even with the impending entry of U.S. Group II producers into the Middle East Gulf, buyers are tending to favor long-term supply contracts — albeit sometimes with multiple suppliers.
As with European prices, levels are unchanged, between $1030-$1045/t in respect of the range of light viscosity material, with 500N and 600N between $1120-$1145/t. These prices refer to landed values for cargoes of 1,000 tons and more basis CIF Middle East Gulf ports.
December brings little cheer for the Group III scene with demand starting to wane this week due to the approaching holidays. With most buyers having minimal stocks, only a small number of deliveries have taken place this week despite the norm for blenders to stock up on these grades. It is expected from all quarters however, that at least a mini surge will happen during January and February when stocks of these grades start the replenishment cycle.
Prices are maintained with little or no slippage at 910/t for the 4 cSt material, and 6 cSt Group III base oils at 920/t. These prices are on basis of ex tank Antwerp-Rotterdam-Amsterdam.
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.
