EMEA Base Oil Price Report

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Base oil markets throughout Europe, the Middle East and Africa appear to have stabilized the past week, but many believe they will face more downward pricing pressure during coming months.

There is an inherent weakness to the base oil markets, with many buyers refusing to commit to large inventory replacements due to the possibility of prices falling lower. The sentiment stems from two factors: first the current low costs for crude oil and base oil feed stocks; and second a faltering demand cycle in a number of the worlds key economies.

Prices for dated deliveries of Brent crude oil were relatively static under $49 per barrel, while prices for West Texas Intermediate maintained a smaller crack at $46. Global stocks of crude are swelling as more barrels come into the market from places such as Iran. With OPEC members openly declaring that they will protect their market share, some believe crude prices could fall further. The price of gas oil on the Intercontinental Exchange – commonly used as a gauge for other products – increased slightly to a front-month settlement of $471 per metric ton.

Europe

FOB prices for API Group l oils within Europe flattened the past week, with only a few changes from previous levels. Light solvent neutrals remain between $470/t-$485/t. SN500/600 prices attributed last week to certain offers have not been substantiated and so are being revised upward to $590/t-$625/t. These grades remain in demand for many export destinations.

Sources cited cargoes of SN900 from Baltic Sea suppliers in the same price range being assembled in combination with European bright stock priced between $855/t-$890/t, all FOB mainland Europe ports.

The prices above refer to export cargoes being offered or sold from mainstream European base oil suppliers.

Local markets showed more activity the past week as a number of buyers procured unusually small volumes of oil. Many spoke of wishing to avoid large-scale restocking at a time when they perceive that prices could fall further. Some large lubricant blenders have been able to renegotiate prices during the month, coming closer to export numbers. Others are requesting retrospective discounts while looking for further markdowns going forward.

The differential between local European prices and exports narrowed the past week in the face of discounting taking place within this market. The premium for Group l local sales is now assessed between 45/t-60/t when comparing ex tank prices against FOB prices for export.

Group II pricing is being closely monitored by buyers, who report discounting by producers located in Far East and the United States. Another round of markdowns in those markets sliced more than $30/t from light-viscosity grades and around $10/t from 500 and 600 neutrals. European buyers are aware of these cuts and are expecting their own revisions in October. Light Group II neutrals in Europe are now assessed between $535/t-$560/t, while heavy neutrals have come down around $10/t to $750/t-$810/t.

Group III prices are little changed, with buyers and sellers appearing satisfied. Demand and supply seem balanced, though September sales have been lighter than forecast. Some expected buyers to replenish more aggressively following the summer recess, and some sellers are still hoping for a late surge next month. Prices remain in the same spreads as last week: 850/t-875/t for 4 and 6 centiStoke oils, ex tank sales Antwerp, Rotterdam and Amsterdam.

Baltic and Black Sea

Baltic traders report a couple enquiries from West Africa for large cargoes to be loaded during the early part of October. One of these parcels is reputed to be for 15,000 tons of at least three grades, possibly to be topped off with bright stock at a second or third loadport in Northwest Europe. Other more mundane trades are reported, such as a couple 3,000-4,000/t parcels of SN150 and SN500 headed for storage at Antwerp, Rotterdam or Amsterdam. After discounts for freight and quality, these SN150s are pegged at $470/t-$480/t, the SN500 at $545/t-$565/t.

SN900 is available from only a couple Baltic Sea distributors at widely varying prices. One offer is being pitched at around $615/t, basis FCA Baltic storage, and another around $685/t FOB. These differences seem down to which Russian refinery the oils come from. Elsewhere, a bright stock 150 with slightly lower-than-normal viscosity and viscosity index is cited at $835/t, basis FCA Baltic. This grade is also available for delivery to West Africa in flexi-tanks at around $975/t, CIF.

Black Sea trade features cargoes of Mediterranean-sourced Group l being fed into the Turkish market. Two cargoes are lined up this week – one from Greece and another from Italy. Both are around 3,000 to 4,000 tons of SN150 and SN500/600. The parcel from Italy is expected to contain bright stock. Receivers report prices of around $530/t for SN150 and $625/t for SN500/600, with bright stock landing CIF at around $910/t.

Russian availabilities of cross-Black Sea trade show SN500 being offered at $595/t for a 3,000 ton parcel delivered into Gebze, Turkey. Uzbek grades are also on offer for Turkish receivers and also in flexies for trade into East Africa where this quality of material can be utilized for certain applications.

Middle East Gulf

Iranian exports of Group l base oils continue to dominate markets around the Middle East Gulf, with increasing volumes being offered for sale ex the ports of Bandar Imam Khomeini and Bander Bushire. Two parcels – one around 6,000 tons, the other 8,000 tons – have been put up for sale, and with interested receiving parties in the United Arab Emirates and Indias West Coast, business has been brisk. It is still not clear how these parcels are being shipped since economic sanctions against Iran officially remain in place.

Latest reports from the region peg prices equivalent to around $840/t FOB for SN500. Other grades are also available, although most exports consist solely of SN500.

In addition to Iranian exports, European oils shipped via the Mediterranean have been confirmed into the U.A.E. ports of Fujairah and Sharjah. Local sources reported prices of $550/t-$665/t for the range of solvent neutrals and $945/t for bright stock.

The Middle East appears to be going long in base oils, perhaps mostly because of the flood of Iranian material being made available. This may have curtailed oils coming from Europe and the Red Sea. Bright stock continues to be in demand, but not many deals appear to have been completed, with local sources saying prices seem to be around $60/t-$75/t below current offers.

Group II trade around the Middle East Gulf is slow and many receivers say they have no immediate requirements for these grades. Offers from the Far East and the U.S. continue to circulate, but either prices are considered too high, or the grade split is not right for receivers generally looking for heavier grades. Prices are continually changing, with offers now coming in at $548/t-$570/t for October supply of light neutrals and $745/t-$760/t for 500N and 600N. The latter assessments are some $10/t lower this week after revisions to FOB levels at source. Buyers in the region are still complaining about Group II prices, arguing that these oils should be some $50/t-$80/t lower than current offers.

Africa

East African imports continue as a number of smaller parcels are being assembled for bulk supplies into this area – these being in addition to flexi-tanks of material from the U.A.E., India and the Black Sea. News that Tanzania has increased import duties on base oils will do nothing to encourage the blending of finished lubes in that country and may put traders and resellers at a disadvantage when competing for export business into neighboring states.

In South Africa, local sources said a number of large deliveries suggest that Group II trade there is expanding fast and that many of the parcels arriving into Durban from the U.S. and Europe consist of these grades. Group l grades are also being imported by traders operating with local suppliers to distribute base stocks throughout the region.

West Africa trade is still reserved, with many players still sitting on the fence waiting for prices to readjust. Some local sources cite offers that have not changed for some two months and argue that markdowns are in order. One trader cargo and another Nigerian receiver’s parcel are being worked out of the Baltic at the moment, but many more importers are splitting apart cargoes that have already landed. Comments received this week imply that by sharing cargoes lessens the exposure to falling prices is lessened. With growing sentiment that prices may be nearing a nadir, these buyers may suddenly reappear to purchase large quantities of base stocks.

Group l grades are currently assessed at $665/t for SN500 and $755/t-$785/t for SN900, all basis CIF/CFR. European bright stock will land at $920/t-$955/t, depending on size of parcel and loadport.

Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly atpumacrown@email.com.

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