EMEA Base Oil Price Report

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Base oil markets were expected to return to post-holiday norms this week, but activity appears slow to pick up. Buyers are back armed with arguments for lower prices, such as the long positions that some suppliers have openly admitted to and decreases in crude and feedstock values that occurred over the Christmas period.

Demand is still woefully slow throughout Europe, the Middle East and Africa, with many in the buying fraternity saying they will hold off purchasing large volumes of inventory replacement because they believe base oils have not yet adjusted to the last round of crude and feedstock price cuts. Some contend it might take a month for the full effect of recent crude lows to be felt, and some predict crude will fall further, amplifying sentiment that the market has not reached its nadir.

With the luxury of not having to purchase full quantities, some blenders are electing to buy small parcels of material as stop-gaps until the market becomes clearer. Sellers, on the other hand, are becoming reluctant to cut prices but are watching storage tank levels rise. Baltic Sea and East European trade is slow, and with the onset of the Orthodox holidays, Russian exports are expected to slow anyway. Most Orthodox locations are now on holiday until January 11.

The trend of falling crude values is continuing for both Dated Brent and West Texas Intermediate, with both crude benchmarks hovering around $36 per bbl yesterday. ICE gas oil has retreated again to 333 per ton, some 10 down on last weeks figure.

Europe

It has been difficult to ascertain base oil prices in the short period since the holidays ended, partly because of the caution abounding in the market. Thus your columnist

felt it prudent to maintain most European Group I prices this week and wait to see how much prices move.

Light solvent neutrals are unchanged between $460-$475 per ton, with SN500 and SN600 between $545-$560/t. Bright stock offers appeared to have dropped around $10-$15/t lower than before the holidays, so the spread is adjusted even if these offers have not been accepted by buyers. Bright stock prices are now pegged between $840-$865/t. Some sellers have said they are offering lower prices to entice buyers.

These FOB levels refer to export prices contained in offers seen this week and previous numbers quoted by sellers supplying ex mainstream refineries in mainland Europe.

Local prices are similar, based on confirmed notices issued by sellers outlining January prices for Group I supplies. These are reported to be some $40-$50 (or euro equivalent) lower than December levels, but buyers are unwilling to accept them, with some arguing it is too soon to determine what values are appropriate.

Some blenders with operations resuming in mainland Europe this week have stated that they already have enough stocks for January and are in no rush to replenish. They will buy only on a hand-to-mouth basis to maintain operations and will not seek their normal monthly offtake until prices become clearer. This action is putting pressure on suppliers who have limited storage facilities.

The differential between local sales and export prices is not clear this week, so this column is citing previously mentioned differentials of 75-95/t. More information should be available for next week.

Group II prices have been similarly treated, with most distributors posting decreased levels for January volumes. Comparing these against price cuts by the refiners of these oils, buyers have acquiesced but promised to monitor the situation. The better news for suppliers is that demand for Group II grades appears to be stronger than demand for Group I. There are some very aggressive prices around the market, with market share being the name of the game.

Prices are re-aligned between $510-$525/t for light Group II grades, with two contracted offers for January below $500/t. Heavier products have also dipped and are now between $655-$710/t ex tank Amsterdam, Rotterdam and Antwerp.

Sources said Group III prices have been adjusted downwards by almost all sellers, decreases ranging between 15-25/t for both 4 centiStoke and 6 cSt products. Levels are now pitched between 780-795/t ex tank Amsterdam, Rotterdam and Antwerp.

Baltic and Black Sea

Business along the Russian coast of the Baltic Sea is quiet, possibly due to the start of Russian holidays. There have been a few offers for loading during the second half of January or February, but traders looking to purchase said it is too soon to determine prices even though distributors in the Baltic have already bought them. FOB bid prices for Group I exports are lower than before the holiday period, with SN150 requested between $445-$460/t and SN500 down to around $510-$525/t. Some buyers have made lower bids but were rebuffed.

Reports have circulated of SN900 at $565/t FCA, although one seller claiming to have around 4,000 to 5,000 tons of this grade for early February loading is asking more than $600/t FOB.

Black Sea trade is thin, with few reports of any new deals or offers. Turkish buyers are looking for bargains and prices around $470/t and $495/t, respectively, for SN150 and SN500. Suppliers do not appear to have responded. Last weeks report mentioned Romanian traders in reference to third parties offering material into Romania and Bulgaria from outside those locations.

With no firm offers this week, and low counters or bids which appear to be unsatisfactory to sellers, prices reported here are unchanged: $520-$530/t CIF for SN500 and $490/t for SN150 delivered into Turkish ports such as Gebze or Aliaga.

Middle East Gulf

Little activity was reported in the Middle East Gulf, with many sellers, buyers and traders still away from their desks. Iranian sellers, however, have moved again to offer material for February and do not seem shy about cutting prices for stocks offered FOB at southern Iranian ports or delivered into locations such as Indias West Coast.

Prices for FOB terms are around $425/t for normal SN500, while SN500 with higher viscosity index is being offered at around $465/t. Prices for CFR deliveries into Mumbai anchorage are estimated at around $470/t for routine grades in volumes of 4,000 to 5,000 tons. Sources estimate that some 25,000 to 30,000 tons of Iranian SN500 will be exported by the end of February.

Other Group I material continues to arrive in the United Arab Emirates and Oman ex Red Sea, but prices are apparently under pressure due to Iranian determination to build market share. The lower quality Iranian material is attractive to receivers who are not bound by specific formulations, and who have flexibility on both base stocks and additives.

Group II trade around the Middle East Gulf is also thin, with few notices of any new business. Offers have arrived from suppliers in the Far East at lower levels than those posted during December, but it almost appears that buyers have sellers continually on the defensive by countering with requests for substantial discounts. So far those requests have not been accepted.

Traders have also offered material from the United States Gulf Coast, but buyers are skeptical because of longer lead times. Last week there were expectations that some buyers would start re-stocking after January 1, but that does not yet appear to be happening. A couple receivers have issued enquiries for parcels of around 5,000 to 6,000 tons of mainly heavier oils plus 1,000 tons of light-viscosity stocks.

Prices contained in confirmed offers included $493/t for quantities of 150 neutral and $578/t for 500N, basis CFR/CIF U.A.E. ports.

Africa

No further intimations have been gleaned from the market regarding Group I cargoes loading out of Europe for South Africa, although a couple shipping enquiries are circulating, and these may result in a fixture during the latter part of this week to load 6,000 tons during second half January.

West Africa trade appears to have gone completely quiet, with few enquiries coming out of Nigeria. With some Baltic sellers on holiday and two large cargoes having been loaded during last days of December, the market may be sated for the moment. This inactivity could also be due to many of the main players spending holidays in Europe.

In light of prices that were heard and in some cases confirmed, prices two recent parcels are assessed around $594/t for SN500, with smaller volumes of SN150 landing at $498/t and bright stock on one cargo at $923/t, all basis delivered CFR/CIF. SN900 ex Baltic has not been confirmed, but is estimated to land at a level of $665-$675/t.

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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