Europe-MidEast-Africa Base Oil Price Report

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Prices within the EMEA regions remain within a relatively tight framework, but suddenly have an added upward swing, reflecting reduced avails from a number of producers accompanied by renewed demand from parts of the region such as Turkey and West Africa.

Movements on the crude and feedstock fronts will impinge on base oils within the next few weeks. Dated Brent has moved forward to over $114 per barrel, with ICE gas oil tracking this upward trend, increasing to close at $977 per metric ton, the highest levels for both crude and gas oil since last October. These movements highlight two issues. Refiners may choose to limit production even further, or if they continue as now, they must find ways to increase margins and contributions from base oil sales.

These facts have been stated previously with few players grasping the nettle, but it would seem from conversations held over the past couple of days that weve reached a crossroads, and that independent decisions will be taken over the next month by individual producers as to which direction base oils will take.

A number of traders are looking to take physical long positions on base oils, with and without hedges in place. However, storage facilities in the right location are limited on a prompt basis, and this may limit opportunities to procure and store quantities of base stocks for future sales and delivery.

In the meantime API Group I prices are beginning to be tweaked upwards by some $10-$20/t this week, with light solvent neutrals now between $900-$915/t, whereas the heavier grades have increased to $915-$940/t. Bright stock has settled around $1025-$1045/t, but with enquiries mounting for this grade, further upward movements are possible.

These prices refer to cargo sized parcels of Group l base oils being offered and sold ex mainland European and North African facilities.

Local European mainland base oil sales have remained subdued and have not responded to any increasing demand from blenders and re-sellers in the domestic markets. This situation may change quickly over the next few weeks if suppliers start to increase prices to export markets, the implication being that prices for material currently placed in storage will rise to reflect replacement costs.

Levels are maintained above cargo levels with differentials of around 40-75/t for smaller quantities of base oils delivered by road and barge.

Baltic & Black Seas
Baltic sellers have been among the first to raise prices in response to higher FCA numbers paid to traders and refineries within Russia and Belarus. Source levels have increased during January due to hikes in crude and feedstock levels during December, this being the normal retrospective pricing model adopted by producers from these regions.

Offer levels for the two main grades SN 150 and SN 500 are now $905-$925/t, but with counters expected from buyers these levels may gravitate to $900-$915/t for prompt sales. For forward barrels for February suppliers are asking for a further $15-$20/t to account for anticipated levels emanating from production sources. Reports also state that supplies of the SN 900 heavy grades are limited and prices for this material may escalate further.

One cargo of some 7,000-9,000 tons of mixed grades has been confirmed loading ex Riga, destined for Nigeria, with a number of other enquiries from other Baltic sources expected to firm up over the next week or two.

An estimated 6,000-7,000 tons of base oils will have been sold ex Baltic supply sources in flexies during the month of January alone. This reflects receivers looking to establish minimum inventories during a period of pricing uncertainty, and also the substitution of Russian barrels in the place of other sourced material, for example Middle East Gulf utilisation of Iranian export avails.

In the Black Sea area Turkish buyers are to the forefront of Group l buying interest with cargoes from Mediterranean and South American suppliers, accompanied by Russian imports of SN 150 and SN 500 into ports in the northern part of Turkey.

Prices for Russian cargoes of SN 150 and SN 500 delivered into Gebze are now $965-$970/t CIF, but with a further two offers for these grades landing on the table this week at increasing levels, $980-$990/t. Sellers are now prepared to relinquish their stocks at these levels, and are building the programme for a busy schedule during February.

Mediterranean cargoes from Italy have been competitive, to allow a cargo of 3,000 tons of three mixed grades reported for arrival into Gebze during first part February. Another South American export has figured on the Turkish slate, with a reported parcel of 3,000-5,000 tons of SN 300 cited for delivery second half Feb.

Middle East
Iranian imports into Turkey, at least by sea, appear to have diminished. Group l imports into the Middle East Gulf have been slow, with a lack of European material flowing in this direction. Iranian imports into Hamriya in UAE continue, with a cargo of 3,500 tons of SN 500 supplied ex BIK. Another export of 3,000 tons of SN 500 to Mumbai anchorage ex BIK has been reported; this business is only possible on the basis of utilising local exchange and regional vessels to effect deliveries against sanctions.

Prices for Middle East Gulf supplies are stable following the small price increases applied to Iranian material. SN 150 is available at $885-$995/t, with SN 500 at $995-$1020/t, all basis FOB UAE ports. Small quantities of SN 650 are also available at discounted levels around $975/t, due to poorer quality for this grade.

Bright stocks have been landed into this region from Indonesia, with lesser specification material delivered around $1100/t. Enquiries for European bright stock are progressing with supplementary quantities of higher spec SN 500 and SN 150. Prices for these grades are commensurate with current UAE levels, but with potential increments in European FOB supply, these levels are set to rise over the next couple of months.

Africa
East and South African markets have been quiet, other than a steady stream of flexies arriving into Mombasa, Dar-es-Salaam, and Durban ports. Prices for SN 150 and SN 500 delivered by this method are $1150-$1165/t for containers arriving within January, but levels will reportedly move upwards by $25-$30/t for February and March arrivals.

West African imports are set to rise again this quarter as many receivers have taken advantage of the lower prices in Europe, South America and the U.S. to arrange supplies for February and March arrival.

Forecast levels for arrival into areas such as Nigeria in February and March are now as follows. Group l grades, mainly heavy neutrals, are expected to land around $1025-$1040/t, with SN 900 ex Baltic around $1065/t where this grade has been available to load. Bright stock from European mainland supply points will now come in at $1135-$1150/t. All prices refer to CFR delivered cargoes.

Groups II & III
Group II prices are being talked upwards for deliveries after February 1. These new prices are in line with expectations for Group l increases. Levels are currently as per last weeks reports, but increments of some $20-$25/t may be applied after this week. Levels will then be $1065-$1080/t for the light viscosity grades, with heavier grades such as 500N and 600N around $1160/t.

Middle East Gulf prices for February deliveries have remained static, but anticipation is that levels will start to rise in this market along with west coast India supplies, whose receivers have already been notified of higher levels for February. Levels are now reckoned to move to $1035-$1050/t for the light grades, from 60N through to 220N, with high vis grades such as 600N around $1125/t. All basis CIF landed prices into southern Middle East Gulf ports.

European Group III remains the enigma of the base oil market, since when prices for Group l and Group II grades were diminishing and crashing around producers ears, Group III grades steadfastly remained high in price, until these grades fell dramatically to current levels. Group III grades continue to fall in price in the face of other grades at least remaining stable, and due to low demand and oversupply, prices are now 945-1000/t, basis ex tank supplies.

It is anticipated that these levels will not deteriorate further, but that due to raw material costs, realistic selling prices will be reestablished for the products.

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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