EMEA Base Oil Price Report

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Dated deliveries of Brent crude oil fell below $37 per barrel Monday, impacting base oil markets throughout Europe, the Middle East and Africa.

Perhaps even globally, base oils are showing distinctly weaker prices with some grades such as API Group II taking the brunt with large source discounts which will eventually float down into various markets.

Brent has indeed rallied, now back to $38.25 per bbl. West Texas Intermediate crude has remained close at around $37.20 per bbl. ICE gas oil for January settlement dipped by around $25 per metric ton, to $341/t.

Europe

Some sources suggested that producers have more product than perhaps desired at this time of year. Yet some Group I suppliers within Europe have been calling time on sales due to lack of material available. The supply scene is sporadic, and very much depends on which seller is being contacted for potential prompt sales during December.

European Group I FOB prices have come off again but not as much as some would have anticipated after the crude reports. Levels have fallen on average only by $5/t-$10/t, perhaps reflecting events which have transpired over the past few weeks, and not factoring in the effects of this week’s crude and products rout.

Light solvent neutrals are now $470/t-$485/t with the heavier grades such as SN500 at $555/t-$570/t. Bright stock prices vary enormously with some sellers holding out for higher numbers. With year-end approaching and other grades accompanying bright stock sales, the temptation is to accept counters, which puts levels around the same as last week, at $855/t-$885/t.

These prices refer to bulk sales for export out of mainstream European production.

Local sales prices are holding steady after new Dec.1 levels. Few suppliers have been in the market to effect changes, and with activity starting to run down for the festive season, deliveries of material to blenders throughout Europe are becoming fewer every day.

Most agree that offtake in earnest will not start until the new year, and that until then, therell only be routine and contracted deliveries which have already been pre-advised and priced accordingly.

The premium attached to domestic or local sales of Group I products is slightly higher this week – due to maintained local prices against slight falls in exports – at 70/t-85/t.

Group II prices within Europe are being revised monthly, and are subject to the latest source discounting which has been announced over the last couple of weeks from producers both in the Far East and the U.S., from where imports into Europe are being shipped.

Group II levels have fallen enough to now compete with Group I. There is a groundswell of opinion from blenders throughout Europe that it is only a matter of time before operators move over to Group II where feasible. This is also borne out by the large shipments of Group II which have been arriving into Europe, mainly from U.S. sources.

With the European markets poised to absorb a further 1 million tons of Group II production within the next 18-24 months, importers must be confident to take and hold market share before then.

Prices are maintained on the basis that there will be further discounting in the near future. The range of lighter vis grades land between $520/t and $545/t with the higher viscosity products between $665/t and $725/t, sold on basis ex tank Antwerp-Rotterdam-Amsterdam.

Group III reports indicate further price pressure, with some importers claiming that currency movements are confusing the scene in terms of satisfactory realizations and netbacks. But with the groundswell of emotion behind crude falls, the market is gearing for further reductions over the next few weeks. However, prices are maintained at 795/t-810/t ex tank Antwerp-Rotterdam-Amsterdam and Mediterranean storage.

Baltic and Black Sea

Whilst Russian export prices through Baltic distributors remain lower than European mainstream levels, they appear to be holding rather than slipping further downwards. This may be due to some sellers announcing that they are sold out for December and will only receive replacement stocks into tank during January.

Some of these sellers are prepared to offer quantities for flexies or smaller cargoes into Antwerp-Rotterdam-Amsterdam-Germany, but loading last minute year-end parcels for deep-sea destinations such as West Africa will not happen.

The large parcels appear to have been loaded or are loading currently with further purchases only taking place in January. With few cargo offers, prices are maintained, with SN150 at $465/t-$480/t and SN500 at $535/t-$560/t – both FOB. The heavier Russian export grade SN900 has been sold between $593/t and $625/t FOB, but with few avails, these prices are historical and may not be repeated in new offers for January or February loading.

Reports of Black Sea trade were thin with only a couple of parcels from Mediterranean suppliers identified as arriving into western Turkish ports. There are continued offers for Russian SN500 and SN150 out of Kavkaz with resultant FOB levels pitched around $510/t and $475/t respectively, although these grades have been offered on a delivered basis CIF Gebze.

Buyers contacted this week remarked that few deals will be done between now and year-end, with a number of players already missing on festive leave.

One rather peculiar shipping enquiry is for a parcel of 3,000 tons loading out of United Arab Emirates destined for Gebze, Turkey. Assuming this parcel to be Iranian SN500 and SN150, the arbitrage does not appear to be open for this type of movement, even with the exceptionally low prices which may be afforded to FOB sales of this grade.

Apart from one enquiry for 6,000 tons of Group I grades to load out of Livorno, Italy, for receivers in the Red Sea, that area has been quiet on the new export front, with only cargoes already identified moving to the west coast of India, Oman and U.A.E. at this juncture.

Middle East Gulf

Middle East Gulf markets are still being dominated by the rush of Iranian exports. With sizeable parcels of 5,000-8,000 tons being assembled for Indian receivers, these exports have revolutionized the trading patterns for Group I base oils in the Middle East Gulf, with a lower dependence on U.A.E. traders acting as go-betweens, although local sources confirm that Iranian barrels are still a mainstay of the lower Middle East Gulf areas.

With further exports expected from any of the three main Iranian producers, the main grade available appears to be SN500 from the Sepahan refinery which is now exporting and loading on company-controlled vessels directly to receivers in the west coast of India.

Iranian exports remain extremely competitive with FOB numbers for SN500 maintained around $435/t with the SN500+ at around $495/t FOB. Only SN500 and SN500+ grades are being exported from this producer, which affords other suppliers of Group I grades to offer parcels of mixed grades containing SN150 and bright stock into the Middle East Gulf.

Group II trade has been very slow, with offers from suppliers in Far East and U.S. not being finalized. Buyers in U.A.E. and Qatar repeat that they appear to have sufficient inventories to see them into January. Some also say that they are very aware of source decreases in Group II production, and with continuing discounting of $50/t-$60/t from posted prices in some cases, these receivers are confident theyll achieve lower levels in the new year.

Offers from traders using U.S. supplies are lower than previously heard with combination cargoes of mainly heavier vis grades at $610/t and smaller quantities of lighter material between $495/t and $520/t depending on grade.

The region has moved from an import destination to an export source, continuing to load Group III material out of Bahrain with a further cargo of 6,000 tons destined for the west coast of India. Prices for 4 centiStoke and 6 cSt grades are $935/t-$960/t delivered CFR according to buyers in India, with the 8 cSt grade in smaller quantities at around $700/t.

Africa

There are further reports of cargoes loading out of mainland Europe refineries for South Africa. It may be advantageous for suppliers to use these movements to minimize inventories at source and also at discharge with cargoes being on the water at year-end. At the same time Group II parcels are loading for Durban, South Africa, out of U.S. Gulf Coast, with 5,000 tons expected to land into that port early in January.

West African buyers report that they have covered almost all requirements arriving during December and January, but are still looking through traders for further quantities of Russian and Polish exports. One trader is currently loading a large slug of some 10,500 tons from the Baltic with this cargo presold to receivers in Nigeria.

Echoing sentiments expressed last week, suppliers in the Baltic have said that they will not discount FOB prices rashly to meet expectations from West Africa receivers and will maintain levels after delivering contracted supplies to receivers in Antwerp-Rotterdam-Amsterdam, where they claim returns are more favorable.

Another parcel is expected to load during the second half of December from Mediterranean suppliers in Italy, and this cargo may also cover the Ghana contract supply in addition to smaller parcels being discharged either into Lagos, Nigeria, or into receivers in Conakry, Guinea, and also Cote d’Ivoire. The Spanish Mediterranean may provide a further cargo which could load promptly during the last week of December bound for Apapa, Nigeria.

Prices for material delivered in ports such as Apapa are being maintained in light of sellers in mainland Europe and Baltic refusing to sell at low prices for this region. Heavy Group I neutrals SN500 and SN600 are expected to land at $645/t-$660/t, although almost immediately one receiver in Nigeria claimed this week to be holding a deal in which SN500 is $30/t below that spread.

Small quantities of SN150 are $525/t-$540/t depending on quality and specification. Bright stock is $985/t-$1015/t CFR/CIF, slightly higher than last week due to a limited number of sizeable parcels of this grade. Quantities of Baltic SN900 are $695/t-$725/t, but in this case the same receiver claims some $25/t lower than the mid-point of this range.

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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