EMEA Base Oil Report

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Base oil prices in Europe, the Middle East and Africa appear to be largely unaffected by the upward crude movement, with suppliers guarding market shares despite sweeping oversupply.

Base oil players see crudes price revival in two ways. The upturn in crude oil prices affords the chance to curtail further erosion to base oil prices, but it also squeezes existing margins due to higher raw material costs. Some pundits forecast crude oil dropping back to sub-$50 per barrel levels, whilst others have said it could go higher in the foreseeable future.

European API Group I FOB levels are weaker, with lack of activity. There have been a few oddball reports of large cargoes being planned or assembled from Baltic and Mediterranean suppliers, perhaps testing the arbitrage between Europe and other markets in the United States and the Far East.

Light solvent neutral grades SN 100 and SN 150 are $525-$545 per metric ton, coupled with the range of heavier neutrals at $520-$550/t. Bright stock has dropped a little on the back of a couple of parcels being traded into West Africa, producing levels of $642-$665/t.

The FOB prices above refer to cargo sales and offers for export parcels of Group I base oils being issued from suppliers located in European mainland, and occasionally North Africa.

Local prices appear to have remained flat last week, some say due to the rising crude positions, but in reality most of the local or domestic prices are fixed for a period of one month, and will not change rapidly, barring some catastrophic event. Prices remain at a sensible premium to export levels, reflecting extra supply costs of 25-40/t.

Group II prices within Europe appear to be closing on Group I levels, as they have in other regional markets, with levels weakening as some marketers aggressively try to increase their slice of the available European market.

Offers for current and future supplies of Group II through the end of the first quarter have been heard at very low levels, enticing some Group I buyers to switch. These levels were assessed between $535/t and $550/t for the range of light vis grades along with heavy vis products between $550/t and $565/t. Which approvals these grades carried was not clear, nor whether these prices were fixed or linked to some other pricing mechanism.

Other suppliers maintain that they are selling at higher levels, at which the market is sustainable.

Group III markets around and within Europe appear to be flat this week, with buyers and sellers taking a mid-month attitude to prices. This is because these products are mainly priced on a term basis, similar to local or domestic trades. With February numbers agreed on, no major changes are anticipated.

The euros fall of around 17 percent in past months may put pressure on prices of imported Group III products. Levels for February sales are 855-885/t in respect of both 4 cSt and 6 cSt grades. Prices are based on ex tank sales.

Baltic and Black Sea

Baltic trade remains thin, with few completed deals. Prompt supplies continue to be missing from storage tanks, as distributors and sellers appear to buy to order after completing each sale.

Some buyers, particularly certain receivers based in West Africa, are concerned regarding possible extended delivery time, due to product being sourced only after fixing clean. This is turning their preferences for lifting product ex mainstream European suppliers, which is also having an effect of dragging prices downward, since buyers want to achieve the same levels from Europe as from the Baltic.

Prices for the two main Russian export grades, SN 150 and SN 500, are $480-$495/t basis FCA Latvia. SN 900 can be made available, and is being priced at around $100/t over the SN 500 selling level.

Black Sea cross trade has been under pressure from the latest wave of violence concerning Ukraine, since Russian export base oils were traditionally transported and stored into many Ukrainian ports, where loading was more effective. This has been made more difficult due to interruptions to the railway, and with the Volga river system still frozen, supplies are becoming increasingly difficult, and in some cases, expensive.

Turkish buyers have been opting to buy cargoes from Mediterranean suppliers again, with a number of parcels between 2,000 and 5,000 tons being loaded ex Italy, Spain and Greece. Prices are keen, and reports this week are of material landed CIF into Gebze at around $560/t in the case of SN 500, with bright stock at around $685/t. Some Russian offers are being made for SN 500 and SN 900, but sellers have not confirmed prices.

Middle East

Expansion of the Yanbu refinery is expected to increase the refinerys total base oil capacity from 280,000 tons per year to 710,000 t/y, and is aimed at meeting increased demand for Group II and III base stocks from Saudi Arabia and other international markets. The estimated investment is $1 billion and new production is expected to stream this year.

This expansion will bring another massive tranche of Group II and Group III base oils to the market, with Bahrain and Qatar operations fully functioning, and the Takreer Al Ruwais facility on stream.

Although the region is rapidly embracing the modern era, its high ambient temperatures may force continued reliance on higher viscosity Group I grades, such as bright stock and heavy neutrals. Some enterprising operators may be looking at offering the provision of a term deal for SN 500 and SN 900 into the region, which would provide an alternative source and a more economical solution to the potential shortage of higher vis material.

Local supplies of Group I have traditionally flowed from Iranian suppliers, but with sanctions limiting this trade, buyers are considering alternatives. Prices for Iranian re-exported material ex United Arab Emirates have fallen again this week, with some receivers buying SN 500 FOB at around $470/t. Other reports have this grade at around $495/t, so $485-$490/t might be negotiable now.

Bids for the 4,000 ton parcels of SN 500 and 3,000 tons of bright stock mentioned last week were declined, with sellers countering at around $488/t and $655/t, respectively, basis CIF U.A.E. for end-of-March arrival. Origin has not been established, but market sources maintain that traders are forecasting levels falling and are chancing that these prices will be effective around delivery date.

Group II prices are reflecting the dip in prices in the Far East. Some U.S. producers have declined to offer against enquiries for Group II grades going into Middle East Gulf receivers on the basis that they can find more attractive contributions elsewhere, and do not want to push their prices lower. March delivery offers include low vis and high vis grades at $645-$660/t basis CIF.

Africa

Group II and Group III imports appear to be making inroads in South Africa, with reports of parcels of up to 5,000 tons being taken into main ports such as Durban by importers representing Korean producers and suppliers such as Chevron and Petronas.

Prices are subject to import duties and local tariffs after landing, depending on destination state. Historical information dating back about a month on landed levels suggests that prices are $800-$850/t in respect of Group II grades and around $1100/t for Group III.

West African markets are buoyant, but are struggling to book all requirements issued by receivers. The Baltic situation is not helping, and suppliers in Europe that know that West Africa markets may be short are pressured to push levels higher. Nigeria is the most affected, with some purchasing from U.S. rather than paying asking levels from traders sourcing ex Europe.

Many recognize now that the market may be bottoming out, and they want to fill every storage tank possible with base oil. Some have diverted imports of mogas, AGO and DPK (automotive gas oil and dual-purpose kerosene) to be able to utilize the storage space for base stocks, presumably where higher margins can be made.

According to sources, a planned Baltic cargo of SN 150, SN 500 and SN will now load around early March.

Prices CFR/CIF West Africa ports are assessed at $585-$590/t in respect of Baltic and European SN 150 and SN 500, with Russian export quality SN 900 at $690/t. Bright stock, depending on source, whether European standard or U.S. export, is being offered at $745-$785/t. One offer of U.S.-origin Group II 500N is being tabled by traders to Nigerian buyers. Price is not disclosed but is estimated to come out at around $688/t.

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

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