EMEA Base Oil Price Report

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With the news of the week dominated by the insurgence in Iraq, markets responded by pushing crude and product prices higher, and base oils in Europe, the Middle East and Africa are no exception.

Dated Brent crude almost breached $116 per barrel in trading at the end of last week, but has since retreated to around $114/bbl. Petroleum products have also taken a step back from the highs reached last week, with ICE gas oil front month showing around $935 per metric ton, around $5/t higher than seven days ago.

Base oil producers have been trying to lift prices higher, with some degree of success in some areas, but meeting with fierce resistance in other quarters.

Europe

European refiners have almost as one tried to push numbers upwards by around $25-$30/t in asking offers this week, with API Group l light neutrals climbing to $1045-$1060/t, numbers which were mentioned last week but not seen from all suppliers. Heavier Group l neutrals are offered at $1055-$1085/t, with bright stock, in relatively short supply, at $1230-$1265/t.

These prices refer to bulk cargoes of Group l base oils from mainstream producers in mainland Europe and North Africa, where avails permit offers.

Local prices for material delivered by truck or barge also recorded price increases this week, by around 15-25/t. A number of sellers say further increases are in the pipeline, since even with crude and feedstock levels calming down, replenishment stocks coming into tanks from producers and traders were carrying higher values. Many buyers were looking around the market to see if alternative stocks of Group l could be available at more attractive prices, even if delivery costs were higher.

Levels for European domestic sales were assessed 100-125/t higher than export offers.

European Group II grades have reacted both to U.S. and Far East source price increments and to moves for Group l grades. Group II is nearly always maintained at a premium to Group l, with the result that distributors for imported products have lifted ex tank prices. Light vis grades are now pitched at $1095-$1150/t, with the heavier material, 500N and 600N, now being offered ex tank in Northwest Europe around $1215-$1325/t. There are some discounts for special-case buyers, but these discounts are small in number and even smaller in size.

In the Group III camp prices are being talked higher but with very little progress. European producers of Group III such as Neste and ExxonMobil seem keen to move levels higher, but imports from Far Eastern producers appear to be holding levels down, at least for now.

Group III prices continue at last week’s levels of 965-975/t for the lighter 4 cSt grades, with 6 cSt material between 975-980/t.

Baltic and Black Seas

A number of Baltic cargoes of Russian and Belarus Group l grades have been sourced in the past week, primarily for West Africa. SN 150 has been offered at $1000-$1025/t and the heavier SN 500 at $1010-$1030/t. Higher quality SN 900 has been priced at $1055/t basis FCA, and after transportation costs are added, an FOB value of some $1085/t can be established.

Black Sea enquiries for SN 500 and SN 900 have been circulated whilst offers of Fergana material ex Batumi storage have been tabled at $960/t FOB. The same source has also yielded material delivered into Gebze and Gemlik at around $985/t CIF, hence the conclusion that FOB levels ex Batumi could realistically be around $945/t. Flexi loads of Fergana material are offered at $1025-$1035/t basis CIF Turkish ports. Turkish buyers are also looking for bulk material ex Fergana and Turkmenistan as well as any avails of Russian SN 500 which might be coming out of Crimean or other Ukrainian loadports.

Middle East

With disruption to supplies of Iraqi and Iranian base stocks due to the insurgence in Northern Iraq, and also the problems of moving truck deliveries through Syria, the dynamics of the Turkish market have been turned upside down. There is a growing reliance on Uzbek imports to supplement the locally produced Tupras Group l grades, and although the fuel dilution scene has been severely curbed by government action some light vis base oils are still being imported for this particular end use.

Middle East Gulf trade is being closely monitored due to the ISIS problems in Iraq. With one of the main refineries at Baiji taken over by insurgents, the base oil train which was capable of producing 135,000 t/y of Group l has been closed, according to sources in SOMO, Iraqs Oil Marketing Co. Although this unit was not running at full capacity, the loss of production from this source will affect not only local Iraqi markets but also those in nearby Kurdistan, southern Turkey and Syria.

The problems caused so far and the potential for further disruption will have major effects throughout the region. Supplies of Group l grades ex Saudi Arabia could be hampered, with other production ex UAE unavailable for export into regions such as Kuwait and southern Iraq.

Sanctions may be lessened to allow Iranian produced base stocks to flow more easily from ports such as BIK. There have been no official announcements as yet, but local sources say that they expect banking and shipping sanctions to be relaxed within weeks, allowing freer movement of material out of Iran. Prices for the Iranian SN 150 and SN 500 grades have moved upwards by some $25/t this week with parcels of SN 500 offered ex UAE around $1065/t.

Imported Group l grades are landing at $1095-$1130/t for the neutrals, with bright stock delivered around $1285/t from U.S. and Brazil.

Exports of Group l base oils from UAE may be limited as demand from Gulf Cooperation Council member states and Iraq rises on the back of depleted production in those areas. Light solvent neutral grades are becoming scarce, but demand may slacken at least until September when the market restarts.

Middle East Gulf Group II prices are starting to rise in line with Far Eastern source price hikes. July offers have been tweaked upwards by $20-$30/t, with levels now at $1110-$1135/t for grades 60N through to 220N. 500N and 600N are now offered at $1130-$1160/t. These offers are resisted by buyers, but a potential oversupply situation is unlikely due to turnarounds and other refinery cutbacks.

Africa

East African imports of Group l oils and recycled lubricants are rising again, through ports such as Dar-es-Salaam, Mombasa and Durban. Prices for these base oils on a delivered basis are comparatively high due to transport costs and duties levied. For example Group l SN 150 and SN 500 landed in flexies is being delivered to blenders in Uganda and Rwanda at levels approaching $1500/t.

South Africa reports a number of imports of naphthenic grades, along with quantities of white oils.

West African trade has been thin this week, with few new cargoes announced after the confirmation of two parcels loading ex Baltic and another cargo from Iberian suppliers. Levels are in line with numbers proposed last week, and in one case confirmed at $1087/t for Baltic SN 500, along with SN 900 at $1128/t, basis CFR Apapa. A further parcel of higher spec SN 900 has been offered at $1165/t. Bright stock from mainstream sources in Europe is around $1325/t CFR.

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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