Europe-MidEast-Africa Base Oil Price Report

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This week has seen base oil price increases, while feedstock values remain high, and alternative products such as diesel are netting back at substantially higher levels than base oils.

Crude oil has been knocked off the platform this week with Dated Brent at $112.50 per barrel, coming off by some $5/bbl from last weeks level. Forecasts for crude are bearish, with levels around $104 projected for Dated Brent for the medium term. ICE gas oil futures have fallen, with front month quoted on the exchange at $952 per metric ton at Tuesdays close.

Crude reserves in the U.S. and Europe are reported as high, but forecasters are adding that even if Dated Brent fell below $100/bbl, base oils would still have to increase in overall value by another $100/t over todays levels to reach parity with other petroleum product prices.

Establishing new API Group l levels was difficult at the end of last week, but some clarity has now filtered through. Most mainstream players see levels increasing by $20-$25/t this week, although some suppliers had already moved numbers anticipating the market forward.

Levels for light solvent neutrals are now $990-$1045/t, with heavier grades such as SN 500/600 in a range of $995-$1050/t. Again, the higher ends reflect sellers offers which may carry an extended validity. Bright stock strangely has not moved off levels reported last week, at $1075-$1110/t

The price levels above reflect FOB sales and offers for bulk cargo sized parcels of mainstream base oils, ex Northwest Europe, Mediterranean and North African suppliers, as availability allows.

Local domestic European prices for Group l grades have also seen sharp increases since last week. Differentials between export prices and local levels have widened to 90-100/t.

Baltic and Black Seas
Baltic supplies of Russian and Belarus base oils have been the subject of many possible deals over the last few days, with only one further cargo of 8,000 to 10,000 tons announced loading from Liepaja and a second Northwest European port. Prices for the two main grades, SN 150 and SN 500, have been elevated to $980-$995/t, with two offers breaching this range at $1010 for the SN 150 and $1015/t for the 500. Avails for prompt barrels out of the Baltic remain tight for large shipments, and distributors are waiting to offer closer to load dates, since index linking is being declined due to potential inaccuracies in price levels.

SN 900 remains in short supply and in some cases can only be bought on an advance order basis. Smaller quantities of this grade are available for loading in flexies with prices around $1060-$1070/t FOB. Bulk indications for larger quantities are around $1035-$1050/t, but for shipment only during April.

Black Sea receivers have posted a number of enquiries for Turkey and Greece, with many trying to bid at historical price levels which are no longer valid in the market. Suppliers have raised both FOB and CIF numbers reflecting higher FCA costs by some $15-$20/t this week. This is in addition to increases of some $20/t imposed early last week, taking FOB levels for the two main grades to $985-$995/t.

Given a rising market many Turkish buyers are keen to utilise a new exchange system which can allow a drawdown against future cargoes using current price levels to effectively produce a fixed rate deal. The system avoids the use of costly letters of credit, and prevents locking up capital funds for an extended period of time.

Middle East
Reports from eastern Mediterranean receivers suggest that some material is being sought for import into Lebanon which may be destined for onward transportation by road to Syrian blenders. Confirmation of exact requirements and cargo size and composition has not been obtained as yet, but sources stated that all routes to supply into this region were being explored.

Saudi Arabian suppliers are eagerly awaiting the start-up of the new Group II production facilities at Yanbu. The European Mediterranean is expected to be one of the target markets for this material. Group l business continues as normal with cargoes loaded for the west coast of India and also for U.A.E. Prices are assessed around $975-$985/t for the neutrals and for bright stock at $1095-$1120/t, all basis CFR delivery.

Middle East Gulf markets, particularly U.A.E., have been to the fore in terms of material moving in and out of this region. Iranian material is available ex BIK for local buyers who can organise these transactions, and with three cargo movements to Hamriyah reported in shipping channels, Iranian producers continue to export. Prices have firmed over the past week, with re-exporters in U.A.E. now looking for around $970-$1025/t for SN 150, with SN 500 offered in a wide range between $940-$1020/t. The disparity in the range for SN 500 has been verified as quality based, with one parcel of very low spec material being sold at the lower end of the band.

Iranian bright stock has again been offered ex BIK but this week some 3,000 tons is mentioned as available at around $1085/t FOB.

Africa
East African markets have been trying to take advantage of lower prices for Iranian material from U.A.E. Other sources such as Black Sea and Red Sea have been uncompetitive, but this situation may change. U.A.E. levels are starting to move up, opening this area to arbitrage from Far East, where Group l FOB levels remain lower.

South Africa reports confirm the arrival of a small cargo of some 2,600 tons from Europe, believed to be one grade, SN 500. This will supplant material still arriving into Durban from U.A.E. in flexies, but will provide higher spec material. With a quality premium applied to this grade, the landed price will be around $1135/t basis CIF delivered.

West African cargoes have been few this week with only one movement noted out of Liepaja, where draft limits the quantity loading. This cargo is programmed for a two port load using one of the Northwest European sources to top off the parcel, possibly with bright stock.

West Africa and Nigeria in particular were noted as one the last bastions of large Group l base oil consumption, but receivers say consideration is being given to using Group II base stocks should these grades become more competitive with Group l neutrals. Offer prices are now $1085-$1120/t for the Group I solvent neutral range up to SN 500, with SN 900 estimated around $1145/t, and bright stock at $1175-$1200/t, all basis CFR Nigerian ports.

Group II/III
Last week at the ICIS World Base Oils Conference in London lots of emphasis was placed on the possibility of Group II taking over from Group l with arguments and discussions from all sides.

At the moment Group II grades maintain a healthy price distance from Group l, but the differentials are narrowing. Levels are now $1095-$1165/t for the range of light vis grades, with 500N and 600N at $1225-$1265/t, basis ex tank, Northwest Europe or Mediterranean storage.

Middle East Gulf Group II base oil prices are relatively static with few price pressures applied from Far East sources. Prices are left as per last report at $1055-$1070/t for light vis grades, 60N through to 220N, with higher vis grades around $1110-$1165/t. These are delivered prices basis CIF U.A.E. and other southern Middle East Gulf ports.

The increasing supply of Group III grades shows no sign of abating, with news of further extensions to production in Russia, China and Europe and the final chapter about to evolve from Qatar. Finding a home for all this production is not yet impossible, but the proliferation of these grades is making it difficult to maintain margins. When the new projects were conceived, projected worldwide growth for base oils was around 5 to 6 percent per annum. Now demand has slumped, and these forecasts are no longer valid.

Price pressure is growing on these grades with every extra molecule hitting the market, and in Europe buyers recognise this. But in the meantime prices are still 990-1040/t for 4 cSt and 6 cSt material ex tank.

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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