EMEA Base Oil Price Report

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With less supplies of API Group I grades, European base oil prices continue to firm.

With multiple buyers clamoring for each available export parcel, and sellers increasing focus on local and domestic markets to obtain higher margins, the markets consensus is that prices will continue to move up.

With crude and feedstock levels also firming due to the escalation in the Russian/Ukrainian conflict, base oil sellers are grabbing the opportunity to increase numbers, which may prove necessary in light of rising feedstock costs soon to affect current production.

Dated Brent crude futures have upped to around $109 per barrel on Tuesday. ICE gas oil is now trading at around $920 per metric ton, some $30 higher than one week ago.

Group I prices have and are continuing to move up almost daily. Offers are being issued with validity of hours rather than days. Coupled with price revisions prior to re-offer, momentum is growing for prices to rise further.

Light solvent neutrals are now $1025-$1040/t, moving ever closer to Group II light vis prices. Heavier grades such as SN 500 are now offered at $1035-$1065/t, subject to grade mix and parcel size. Bright stock has been pushed higher with two offers for 3,000 tons and 5,000 tons at $1220/t and $1235/t, respectively, with smaller quantities offered at lower levels. This is the opposite from some time ago when larger quantities were being discounted and smaller quantities were carrying a premium.

Levels are in reference to export parcels of base stocks offered or sold in bulk ex European mainstream producers where availability allows.

The European local markets have also picked up pace, with Group I increments being applied across the board. Suppliers are able to cherry-pick sales to domestic buyers rather than selling larger parcels and at lower rates to export buyers. Sellers commented that given the option they would still rather sell large export parcels, but only if the prices reflected the alternative options for sales in the local European markets.

The result of these latest moves has been to narrow the differential between export and local sales prices, with only 25-40/t separating the indistinct markets. Export prices have risen more quickly than domestic levels since contracted price levels are still maintained to local sales.

With increases from some U.S. Group II producers of more than $40/t, and Far East refiners trying to push prices higher for both light vis and heavier vis grades, Group II price levels will need to keep pace and distance with Group I increases, especially with summer approaching. This should be simple, although some buyers in Europe are reticent about paying more for these grades given that the overall market appears to be getting longer.

Some anticipate that these grades will become more available than Group I throughout the remainder of 2014, perhaps adding price pressure to remain competitive against Group I. With a lack of high viscosity Group II grades, some Group I grades such as bright stock look set to become more in demand.

Group II prices, however, have moved up by $5-$10/t and are still climbing, should the geopolitical supply scene remain tenuous.

Group II grades are currently being offered and are selling at $1085-$1120/t for the light vis material, along with the heavier 500N and 600N grades between $1190/t and $1280/t basis ex tank northwestern Europe and Mediterranean.

Group III products are once again the enigma of the European base oil supply scene, with prices largely static despite sellers moving all other grades up. Both indigenous producers and importers are prepared to hold current prices to protect market share, but sources suggest that reviews for May 1 changes are afoot.

Some Group III sellers have tried to increase prices, but have been met with buyer resistance, with some blenders threatening that they can switch suppliers if necessary.

Prices are therefore held at last weeks levels, with 4 cSt sold ex rack Antwerp-Rotterdam-Amsterdam at 940-955/t and 6 cSt at 950-960/t.

Baltic and Black Seas

Baltic supplies of Russian and Belarus exports are not returning to normal yet. Many suppliers only have small quantities of SN 150 and SN 500 available. The difficulty has been in re-establishing replenishment stocks in most cases with only one refiner/ producer able to offer material for prompt shipment. All offers from this one source are being immediately accepted even without traders confirming corresponding sales positions.

Prices have been kept private and confidential but levels are thought to be $975-$990/t basis DAF border, with FOB levels of $1020-$1035/t. SN 900 still remains elusive with a number of unfulfilled enquiries for large quantities from Nigeria. Other suppliers are contemplating putting together a blended material with similar viscosity, but no offers or sale prices for this have been confirmed.

Black Sea markets are facing similar restriction for Russian base oils, but some supply holes have been plugged with remaining Uzbek and Turkmeni avails. The usual load ports in Ukraine and Crimea have stopped handling exports, with material from Uzbekistan finding its way through ports such as Batumi in Georgia. SN 150 and SN 180 and SN 350 ex Turkmenistan are being offered around $1010-$1025/t delivered CIF Gebze range.

The Turkish market is quiet with some of the few requirements being met by Mediterranean supplies, albeit at higher prices.

Syrian and Lebanese markets continue to merely exist under the extreme pressure of civil war in the former. Russian imports appeared to fill the void, but even these imports have come under logistical difficulties after the Ukrainian situation evolved.

Red Sea exports have seen parcels of Group I solvent neutrals again going to United Arab Emirates and other Middle East Gulf states, with one cargo destined for the west coast of India. Prices for these grades are not circulated, but follow European Mediterranean levels, with SN 150 being loaded at around $1020/t and SN 600 at around $1035/t. To play a part in the market, landed price levels for these must compete with Middle East Gulf-produced Group I.

Middle East

Middle East Gulf prices, unlike European levels, are being maintained over the past weeks. One enterprising trader has suggested that the arbitrage between Middle East Gulf and Europe could be opening up, with prices for U.A.E. re-exported Iranian barrels of Group l SN 500 at $990-$1000/t FOB. This may or may not happen, due to sanctions from Iran.

Bright stock prices have firmed with supplies offered on a re-export basis at around $1260/t basis FOB, moving upwards by some $30/t with this grade going short.

This region is peculiar where Group I material is concerned, with static or even falling prices for local supplies of SN 150 and SN 500, whilst premium products are starting to rise in line with European and Far East trends, along with local and imported bright stock, which is moving upwards.

Group II imports into the Middle East Gulf regions appear to be healthy in quantity, with most buyers commenting that they are looking at flat prices across the grades. Sellers in Far East have been trying to inch up prices, particularly for the light vis grades which have been shorter in production circles than the heavier vis material. However, Middle East Gulf regions traditionally use more of the heavier vis material due to higher year-round temperatures, hence receivers have been pushing hard for discounts from offers for these heavier grades saying that they are longer in supply and should therefore carry lower prices.

The logic is faultless, yet suppliers are trying to increase prices $20-$25/t over the next few weeks due to higher feedstock costs.

Middle East Gulf prices for deliveries of Group II into U.A.E, Qatar and Oman are being offered at $1110-$1125/t for 100N and 150N. 500N or 600N is $1155-$1235/t all basis CIF, depending on the location of the delivery port and the associated freight cost.

Africa

Prices of imports into East Africa and local South Africa are rising in line with Group I levels in Europe, where supply limitation is the driver behind price rises, and also with Far East and the U.S. markets, where increases are largely due to rising feedstock costs. A fix on new levels shows that Group I delivered prices for SN 150 and SN 500 are $1165-$1185/t, with bright stock around $1340/t.

Some West African markets are in turmoil, with Nigerian receivers unable to locate Group I requirements. With European sellers moving prices higher, Baltic markets being ruled out for major supplies, and limited availabilities from areas such as the U.S. and Brazil, buyers are beginning to realize that landed prices will bear no resemblance to those of a month ago.

Levels for available barrels loading now are estimated to be in line with last weeks offers, $1160-$1180/t for the SN 150 and SN 500, along with bright stock at around $1375/t for cargoes delivered CFR Apapa. Lower-priced material may be available from U.S. sources where quality of some grades such as bright stock may not match European mainstream production, but in essence these levels are a guide to expected levels delivered during May.

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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