EMEA Base Oil Price Report

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Many sellers claim its too soon after the holiday season to evaluate EMEA base oil markets, and buyers seem hesitant about returning to top off inventories.

Buyers are playing a waiting game, stating in many cases that prices are expected to fall within the next month or so, with forecast levels becoming considerably lower throughout the rest of the third quarter and into the fourth.

However, API Group I products worldwide are looking to move into a global short position in the coming months. If this continues and sanctions are applied to certain traditional supply outlets, then Group I demand may start to rise.

Helping this is the continued drift in crude prices, with Dated Brent dropping to around $100.70 per barrel in Tuesday trading. This is the lowest level for 15 months, reflecting the anticipated downturn in manufacturing output spanning Europe to China. West Texas Intermediate also shrank for October settlement to around $94.70 per barrel, maintaining the crack with Dated Brent at just under $7. ICE gas oil in London trading followed the trend, down some $13/t, to $854 per metric ton. With Dated Brent possibly headed to the $100 per barrel resistance point soon, forecasts send crude values lower. Levels are dropping despite all the political and insurgent infarctions which are currently blighting parts of the Middle East and Ukraine.

European Group I base oil prices are gradually lowering with buyers scenting the beginning of a bear market. Offers for light solvent neutral grades are now $990-$1010/t, and with counters at these levels, it may be expected that prices have further to come down. Even export parcels of light grades for areas in West Africa and Middle East Gulf are coming under pressure. Heavier vis grades such as SN 500 have also been talked down, to $995-$1020/t.

The only exception is bright stock, which has edged up by another $5/t and has healthy demand throughout EMEA and the Far East. With prices rising in these localities, the arbitrage may open. Prices for European bright stock for September loading were $1195-$1235/t, with one supplier asking for a 3,500 ton parcel at around $1042/t, basis FOB One Safe Port Atlantic Mediterranean.

Prices above refer to Group I base oils ex mainland European and North African load ports where availability of each grade allows.

Local and domestic markets have reopened, with production of finished lubricants throughout Europe and the Middle East. As with export selling, many buyers said they will pause before assessing the markets. Some are also playing around between Group I and Group II grades. The price difference between the two has narrowed, with many European importers cutting prices at production sources. Its expected that buyers negotiating for current purchases will pass these cuts on to receivers. The price differential between domestic or local sales for Group I products, over those being lined up for export, is maintained at 95-110/t.

Group II prices are being eroded, seemingly not by the market, but by producers trying to maintain market share in light of looming oversupply. Even with very little indigenous production of Group II products within Europe, imported grades rule the market and are coming down in price. At this point, the heavier cuts are still carrying a premium over lighter vis grades, but according to one importer, in the near future it will be difficult to rule out these grades being priced in the same ranges given the quantities of heavier vis material becoming available. This aspect, coupled with higher demand for the light vis grades in regions of the Far East and U.S., is causing production imbalances which cannot be easily rectified.

Prices were possibly due to alter on Sept. 1, but no downward movements have been announced. However, one buyer suggested that this week will see negotiations for September and onwards, hence next week may reveal changes to Group II levels. The range of light vis grades is $1055-$1080/t, with the heavier grades between $1085-$1135/t. The upper tier of the heavy range applies to the limited supplies of Group II+ material. Prices are ex tank Antwerp-Rotterdam-Amsterdam-Germany.

European Group III levels do not appear to have moved during the last few days. This may be due in part to suppliers trying to maintain the status quo, whilst at the same time buyers have not properly adjusted back into buying mode after the summer. It may take days or weeks for levels to be tested. Therefore levels are maintained, with 4 cSt and 6 cSt grades both at 965-980/t. Prices are ex-rack Antwerp-Rotterdam-Amsterdam-Germany.

Baltic and Black Seas

The Baltic scene is confusing, with a number of distributors stating that they cannot access supplies of Group I from some Russian refineries. Whether this is due to an export ban, or some other reason is not clear. Other suppliers, however, appear to have material such as SN 150 and SN 500 for offer, and are willing to discuss prices not only with traders lifting FOB, but also other sellers who cannot access material through the normal processes. There has been no official notification of an export ban on petroleum products, but a ban does not have to bear official status to operate from Russia.

One fundamental difference in the Baltic market at this time is that it does not appear to be the major driver on European Group I prices. In the past, this sector has been the initiating force behind prices, almost dictating the direction the mainstream market would move.

There are, however, some Baltic players still offering, but traders said that prices are largely uncompetitive when compared to mainstream levels and freight differentials. SN 150 and SN 500 have been pitched at $970-$985/t, with one report of a parcel of SN 900 at $1045/t, all basis FOB Baltic ports.

Black Sea trade has certainly been affected by the problems between Russia and Ukraine, with loadings out of Theodosia in Crimea suspended. Avails of Russian base oils are severely limited, with some buyers turning to Uzbek grades still available ex Fergana refinery. One offer for some 3,000 tons of I-20A was made on the basis of an FCA sale at around $685/t, but with transportation costs in excess of $220/t, even these levels could be uncompetitive when all other costs are taken into account.

Reported prices for Uzbek grades range from $938/t for SN 150 delivered CIF in flexies to Gebze, to $965/t for the same material to be delivered in bulk. Due to transport costs it may be more price-efficient to export these grades in flexies rather than incur high rail charges.

Some small quantities of Russian SN 500 are available ex Azov, with delivered prices into Turkey at around $985/t.

Middle East

Middle East Gulf markets are showing tight positions for Group I grades with all sources being considered. Iranian SN 150 and SN 500 is available ex United Arab Emirates at FOB levels of around $1015-$1030/t, but with demand outstripping supply, these grades are limited to only a few trader outlets. Group I is being sourced from other locations such as the United States, Brazil, Indonesia and Thailand, but few suppliers in those areas appear to be in a position to offer large parcels of Group I.

Saudi Arabian neutrals still flow into Middle East Gulf regions, sharing cargoes with Oman, but these supplies are also limited, and prices have moved upward to $1075-$1100/t, delivered into Middle East Gulf receivers on basis of sea-borne parcels. Some material is delivered by truck and will reflect different economics.

Bright stock remains in demand, with sellers still able to offer FOB prices for this material going back out of U.A.E. at $1225-$1235/t. However, most of the material imported from the U.S. and Brazil will probably be sold locally.

Group II grades moving into Middle East Gulf regions during September moved down in price before last weeks report, and with a number of parcels of light and heavy vis products being offered from U.S. sources, prices are under scrutiny again. One parcel from the U.S. Gulf Coast has been offered into the west coast of India, with options for U.A.E. at $1010-$1020/t CIF. These levels equate to FOB prices from Far East sources where a large part of the supplies for Middle East Gulf regions had been sourced.

These prices are infectious, and have now pushed some prices for Group II products below Group I levels within the region. The difference being that Group II base stocks are long and getting longer, and Group I production is drying up, creating demand, particularly for the heavier vis cuts.

Offer prices are $1045-$1060/t for September in respect of the light vis and heavy vis grades, but it can only be a matter of time before dumping from U.S. brings these offers down to a similar mark as the Indian offer, some $40/t less.

Africa

South African reports are that buyers are in the market for quantities of SN 150 and SN 500 sourced from U.A.E., which is being made available on a CIF delivered basis into Durban at $1165 and $1140/t, respectively, levels which can compete with local production which appears to be continuing after the rumor that one of the refineries was closing its base oil train.

A shortage of storage has limited the influx of Group II moving into South Africa, but with new capacity due during the latter part of this year, and during 2015 in Durban, the flow of Group II from refiners in U.S. may commence on a larger scale, bringing these grades to another growing market.

West African business continues as normal into areas such as Ghana, but Nigerian authorities have announced that they are to limit imports of finished lubricants entering Nigeria, whilst presumably increasing the imports of base stocks to release the redundant capacity for blending within this country.

With traditionally used Group I base oils going short, and the more affordable Baltic loadings having problems, and Group II viscosities not being heavy enough for the majority of blending in Nigeria, timing of such a proposal is important.

There are some worried players in Nigeria who are concerned that whilst European prices appear to be weak, this situation may not last long, and with few alternatives, perhaps only Brazil or U.S., this market may start to struggle to cover requirements.

Prices are being maintained by traders offering cargoes into this region, but one party has announced that prices will have to rise during October to reflect the short market for the grades required. At the moment, numbers are $1030-$1065/t for light and mid vis neutrals with SN 900 at $1110-$1135/t. Bright stock offers, depending on loading location, are between $1175/t and $1235/t.

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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