EMEA Base Oil Price Report

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European, Middle Eastern and African base oil markets are feeling the effects of weaker demand coupled with collapsing crude and feedstock prices.

With crude oil prices in freefall after the OPEC meeting Friday, dated deliveries of Brent crude have posted below $40 per barrel Tuesday afternoon. West Texas Intermediate dropped to under $37 per bbl., although both are now some 50 cents per bbl higher. ICE gas oil has also dropped by more than $40 per metric ton against last week’s levels, to $366/t for front month trade.

The scene might appear quiet, but since late November, there has been a record number of cargoes comprised of various Group I grades purchased from Europe and Baltic sources for both intra-European trade and deep-sea trade to West Africa, India and Far East.

In light of some suppliers of in-demand grades of API Group I stating that theyre facing shortages, some sellers are trying to force prices upward, but this is against a rising swell of reasons why levels should be falling back.

Europe

Group I prices within Europe are weakening further in most cases. Sellers looking for higher numbers tend to be extremely localized. Other producers are merely looking to move material at acceptable netbacks.

Group I FOB levels have retracted, with light solvent neutrals offered at $475/t-$490/t and heavier neutrals SN500/600 now $565/t-$585/t.

Bright stock also tows the line, dropping some $10/t to $855/t-$885/t. Some sellers are trying to hoist levels, but any positive moves are being fiercely countered by buyers saying theres still choice in the market.

On the fixtures side, there have been some arbitrages seemingly open for certain grades of Group I. One interesting movement is a 5,000-ton parcel loaded in Kavkaz for Singapore. Another large cargo has loaded ex Baltic sources for Turkey discharge. This is in addition to other cross-Black Sea trades which have followed more traditional sourcing and discharging.

Prices above refer to export Group I base oils made available ex mainstream Europe production.

European domestic trade has been relatively brisk this week with a number of cargoes into Antwerp-Rotterdam-Amsterdam from Baltic sources. With the holiday season ahead, these may be the last contract and spot movements until January, considering many blending operations start skeleton operations until around Jan. 4.

Group I sales delivered ex tank and truck have dipped following Dec. 1 revisions, and further downward pressure is being exerted. Sellers said theyve set out their stalls for December sales and those prices will now stand until January.

The premium attributed to domestic or local sales of Group I grades over export prices is amended downward to take account of December decreases, to 65/t-80/t.

Similarly, Group II prices were revamped lower at the turn of the month. Still, some sources in the Far East and U.S. continue to discount, encouraging buyers in Europe to look for lower numbers in the new year.

The discounting is extremely variable, with some producers commenting that availability of these grades in home markets is snug, and that little should be given away when looking at import markets. This ethos may have some support, but if all other players are realigning prices then it remains very difficult to hold out for little or no change.

Prices therefore must be amended, with lighter vis grades 70N to 220N now $520/t-$545/t, and high viscosity grades between $665/t and $725/t, sold on basis ex tank Antwerp-Rotterdam-Amsterdam. Truck- or barge-delivered quantities of Group II grades will carry a 25/t-40/t surcharge for extra costs involved.

Group III appears to have reluctantly joined the club, coming under heavy price pressure from all sides. A number of indigenous producers and importers said current prices are unsustainable that they expect levels to fall in Europe by $25/t-$50/t or euro equivalent over the coming months. They also said raw materials and feed stocks costs have also moved downward to accommodate lower prices at existing margins.

Prices are therefore 795/t-810/t ex tank Antwerp-Rotterdam-Amsterdam and Mediterranean storage.

Baltic and Black Sea

Baltic FOB prices have slipped in line with mainstream levels, although there are reports that cargoes purchased at the end of November carried heavy discounts to fix the various deals clean. There are rumors that some sellers were prepared to drop levels significantly for large parcels of SN500 and SN900, accompanied by smaller quantities of SN150 and also Russian and Polish bright stock grades. One cargo of some 12,000 tons of mixed grades was fixed out of Latvian and Polish ports for Nigeria.

Prices for Russian export barrels are lower, with SN150 now $465/t-$480/t FOB and SN500 at $535/t-$560/t. SN900, where available in larger quantities, is $585/t-$610/t basis FCA, with resultant FOB levels $10/t-$15/t higher. These lows reflect discounts heard for large parcels.

Turkish trade from Black Sea sources has been noted with 3,000-ton cargoes loading out of Kavkaz to Gebze. These are presumed to be SN500 in the main with smaller quantities of SN150. The import regulations appear to have been sorted to a point, with only bona fide blenders and finished lubricant manufacturers able to apply for licenses to import base stocks. Other traders are apparently able to hold stocks of base oils in bond, and can resell to approved blenders acting as importers.

A 5,000-ton parcel loaded STS at Kavkaz to Singapore occurred at the end of November. The assumption is that this base oil cargo, comprised of SN900, could be assimilated into Singapore. There have been few if any cargoes from Mediterranean suppliers. With good availability of Russian material still flowing through the river system, preference is given to this lower-cost alternative.

Prices in respect of Russian SN500 are estimated to be around $535/t, with SN150 around $505/t on the same basis. Mediterranean prices, if applicable, would be $35/t-$40/t higher.

Red Sea freight reports show cargoes moving from Yanbu to Oman and further enquiries. Prices for these trades are maintained as private and confidential.

Middle East Gulf

Middle East Gulf regions are showing the usual movements of Group I grades in from Saudi Arabia. Iranian material is now moving directly from Bushehr to the west coast of India. This is a milestone cargo since the shipping is being undertaken by one of the principal Iranian base oil producers using its own vessel and selling directly to end-users in India (not through traders, as they did during Western sanctions). This will increase flexibility on pricing, since it will remove the need for trader margins in the middle of a deal.

The exact make-up of the cargo has not been reported, but SN500 would have played a major part. This refiner is now producing a higher-spec SN500 with viscosity index above 95. This will give access to other buyers within the Middle East Gulf and to Indian purchasers who require higher-rated base oil. The material will be produced to order, and will be around $60/t higher than the standard SN500 – able to compete with other alternative supplies from Saudi Arabia, for example.

Prices for Iranian barrels are still low, with news from United Arab Emirates traders that on an FOB basis SN500 is available at around $435/t, but on that basis the SN500+ (minimum 95 VI) is priced very attractively in local markets.

A number of Group II sellers are actively making offers. One cargo of nearly 8,000 tons is marked to come into Middle East Gulf, but sellers have also taken options to discharge in Mumbai should buyers not decide to make this purchase, or to take a smaller quantity. Buyers are reportedly looking at around 5,000 tons due to storage constraints.

Prices offered are extremely keen with a full cargo of light and heavy vis grades offered at $498/t and $613/t respectively. The light vis material is exceptionally low and may be the carrot to get receivers to accept the whole cargo.

Africa

East African and South African markets have been notably quiet this week, but with published figures showing South African base oil imports up by 70 percent year over year, the effects of the refinery shutdowns are apparent. Existing partners in the refineries are carving up the import market with Group I material from Europe, along with quantities brought in under a private trader’s banner. Theres also news that ExxonMobil will reenter South Africas finished lubricants market after a 10-year absence.

Although there has been one big cargo of around 12,000 tons ex Baltic identified for West Africa, there have not been the usual large number of purchases from Europe, the U.S. and Baltic. These may still happen, although time is running out and suppliers in Baltic and mainland Europe say they may not have the right combination for loading large slugs of Group I.

One Baltic source said it will only have replacement barrels in January, when it could load 8,000-11,000 tons of various grades. It noted that its first priorities were to contracted receivers in Antwerp-Rotterdam-Amsterdam, then to West Africa-type cargoes. This may say that large-parcel loading is not as attractive as it was previously.

Nigerian sources said cargoes have been fixed but not loaded, and receivers are expecting cargoes to arrive during January. The Ghana tender has been covered for the year-end and another small parcel of some 4,500 tons has loaded out of the U.K. for traders in West Africa.

Prices have dipped in line with FOB levels to $645/t-$660/t for heavier solvent neutrals, but one or two more favored traders may be holding lower FOB numbers, which may reduce these levels some $20/t. SN150 should be delivered into Nigerian ports at around $525/t. Bright stock has also come off and is estimated to land CFR/CIF at $975/t-$1008/t CFR/CIF. Baltic SN900 is $695/t-$725/t on the same delivered basis.

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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