EMEA Base Oil Price Report

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Base oil prices in Europe, the Middle East and Africa have started to respond to Brexit in varying degrees, with some areas slowing down and others showing increased requirements.

Crude oil saw price spikes last week, then returned to $48.70 per barrel in respect of dated deliveries of Brent, and $47.45 per bbl for West Texas Intermediate. ICE LS Gas Oil maintained at around $424 per metric ton, $5/t lower than the previous week. Observers have mooted that it may be weeks or months before a clear picture develops in the wake of Brexit.

Europe

API Group I prices are reasonably stable due to a number of coincidental factors. Demand has dipped after a six-week period during which many export deals were announced, and also as a result of the summer blending slowdown that started this month. There have also been a number of high-profile turnarounds at major European base oil refineries, leading sellers to progressively move material. Many buyers have been reticent to purchase large quantities – still unsure of the markets direction.

Group I light solvent neutrals prices remain flat at $510/t-$525/t FOB. Heavy solvent neutrals such as SN500 and SN600 – whilst recently being more in demand than the lighter factions – are also static at $595/t-$625/t. Several export buyers and traders appear to be pushing for downward revisions, with a few requesting discounts of around $25/t. Bright stock also marks time at $985/t-$995/t.

Prices above are in respect of cargo-sized parcels of Group I grades, supplied or offered on an FOB basis ex mainland Europe.

Group I markets are in denial, with many buyers not even bothering to look for supplies and sellers almost absent. Prearranged contract barrels are being delivered, but many operations are either running low or gearing up for maintenance and repairs, which will stem the flow of base oils into this sector. Due to the inactivity, the price spread between local selling levels and export prices is maintained at 85/t-120/t.

Group II business appears to be booming with increasing volumes coming into the European markets each month. Assuming that this growth is maintained, the market will be ready for the entrance of new domestic production primed for the second half of 2017.

The effects of the last round of source increases are now perhaps finding their way down to consumer level. The Group II market in Europe appears to be robust and not overly sensitive to the recent geopolitical vagaries.

Prices in U.S. dollar equivalent for the light grades are up slightly from last week, to $625/t-$645/t, and for heavier vis grades 500 neutral and 600N, to $745/t-$800/t. A premium of 50/t-120/t can be added for products sold on a delivered basis or redelivered to secondary storage.

In European Group III markets, large bulk cargoes from domestic and imported production are coming under price pressure from buyers. Sellers are committed to retaining market share against all the odds, despite new production also desperately seeking a place in existing markets.

European levels for smaller, local supply are therefore reduced this week in a thin market where summer holidays and lower demand are also playing a part, to around 875/t in respect of 4 centiStoke and 6 cSt grades, with 8 cSt material at 840/t on basis of sales ex-tank Antwerp-Rotterdam-Amsterdam. These prices refer to small, truck-delivered volumes and only reflect major purchases in the Group III market, where prices will be substantially lower.

Baltic and Black Sea

Baltic sales of Russian and Belarussian base oils report business as usual with a number of spot and contracted cargoes loading for discharge into Antwerp-Rotterdam-Amsterdam and the United Kingdom, although a couple of distributors in that region have acknowledged that during July and August, trade will be significantly reduced due to holidays and lower quantities of material coming out of Russian refineries. There are two large parcels of heavier neutral grades being negotiated from the Baltic with buyers in the Middle East, India, the Far East and West Africa all taking keen interest.

Prices are stable, with few surprise numbers being heard in offers and deals concluded this week. FOB levels for the main grades, SN150 and SN500, are maintained between $490/t and $520/t and $600/t-$615/t, respectively. SN900 is offered at $695/t-$720/t basis FCA with SN1200 still around $775/t.

In Black Sea trade, one further large parcel is being organized out of Kavkaz, Russia, but without a declared destination. These cargoes will appeal to receivers in the Middle East Gulf and the west coast of India, where the heavier vis grades can partly be used as substitute grades for bright stock in some applications.

Prices in respect of cross-Black Sea trade are heard this week on a delivered basis into Gebze, Turkey, at around $535/t in respect of SN150, with the mainstay grade SN500 landing at around $625/t CIF. Greece-sourced material is estimated between $550/t and $650/t landed CIF into Turkish ports.

Middle East Gulf

Although the Holy Month is ending soon, the hot season will follow almost immediately. This is a time when business and trade in the Middle East Gulf subsides and, in some cases, disappears altogether. Since many players were anxious to continue as normal through Ramadan, it is anticipated that a downturn will follow, particularly in the United Arab Emirates.

Iranian exports continue to be pushed hard into markets looking for this type of quality of Group I grades. SN500 is confirmed this week at July offers of around $600/t, basis FOB southern Iranian ports.

Offers into the Far East are now based on these new FOB levels, which will push delivered numbers to around $645/t-$660/t depending on cargo size. Other offers for both Baltic and Black Sea Russian grades are mingling with mainstream European and U.S. offers, some of the latter being combined with Group II products. The informal poll conducted by this report of resellers, distributors and blenders within Middle East Gulf regions has initiated a lot of interest, which means that further random polls may be established in this region and others to gauge opinions in the future.

U.S.-supplied Group II grades received by Middle East Gulf buyers have risen $10/t-$20/t to $635/t-$665/t in respect of light vis grades 70N through to 220N, with the heavier grades at $780/t-$798/t basis CIF. These were reportedly source increases which had been announced some three to four weeks ago and also stemmed from a balanced, if not short, supply position.

Africa

No further information has been gleaned regarding the 9,000-ton parcel of Mediterranean-sourced base oils bound for discharge into Mombasa, Kenya. Prices are expected to reflect current European FOB levels plus a freight element which could possibly be around $55/t. Trans-Mediterranean Group I grades are maintained at last weeks indication of $595/t-$685/t for the range of solvent neutrals, with bright stock at $1060/t-$1085/t CIF.

Nigerian receivers are awaiting the arrival of the first large raft of cargoes to hit the market for some months, since only a few parcels have been delivered due to the import problems caused by this country being unable to access foreign currency.

Levels for material arriving during the next couple of weeks are assessed at $595/t in respect of SN150, with SN500 at around $680/t and bright stock at $1045/t-$1070/t CFR Lagos, Nigeria. Smaller quantities in bulk or flexies are indicated at $640/t for SN150 and $760/t for SN 500.

Rerefined base oils could be established in West African markets since the region has shown a large swell of interest in material that can adequately perform at more economic prices than virgin base oils.

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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