EMEA Base Oil Price Report

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European, Middle Eastern and African base oil markets, which are already facing weak demand and oversupply of certain grades, are also bearing pressure from the drift in crude prices over the past month, while anticipating the possible effects of further drops last week.

Dated deliveries of Brent crude dropped to around $28.80 per barrel, and West Texas Intermediate crude fell to $28.30 in late Tuesday trading, mainly as a result of Iranian sanctions being lifted. ICE gas oil has retracted to $265/t for February settlement.

European API Group I grades have retracted in offers over the last 10 days, but buyers are unwilling to commit to large purchases, expecting that prices will fall further before bottoming out. One exception is a large slug of Russian export grades currently loading out of the Baltic for Nigeria.

Europe

Mainstream European FOB prices are extremely variable with buyers using one offer to counter another. Some sellers are confused where to pitch, citing that levels may be temporary as raw material costs could as soon increase as decrease further.

Group I FOB levels are therefore cast into widening ranges with some sellers reacting to lower costs and others waiting for clearer signals from the market before committing. Light solvent neutrals are now $440/t-$475/t. Heavier neutrals such as SN500 and SN600 have come under severe pressure over the last few days with prompt offers now $510/t-$555/t.

Bright stock sellers, however, state that they cannot move existing levels of $820/t-$845/t lower. Still, many counter these, with some requesting discounting of around $50/t.

These FOB prices refer to large export parcels of Group I base oils being offered and supplied ex mainstream producers within mainland Europe.

Many buyers engaged in local and domestic trade within Europe have been slower in requesting changes to buying prices, but are now mounting pressure on sellers. Many blenders in particular have banded together, lobbying for their common suppliers to lower levels by 25/t-65/t from December prices, with further realignments to come.

Prices are now under continuous review by both sellers and buyers. Due to the wide price ranges for exports, the differential between local sales and export deals has been difficult to determine but is estimated at 35/t-80/t, depending on grade and supplier.

Group II prices have eventually succumbed to buyer pressure, and at a faster rate than previously. With a new round of source decreases initiated by one or more U.S. producers who export into European markets, further discounting can possibly be expected sooner rather than later. However, these discounts are being applied to local posted prices, which may already be discounted, lessening the effect of such source adjustments to imported and eventually ex tank prices. Meanwhile, large quantities of Group II base oils are making way from Far East and U.S. into Europe, which appears to be able to increasingly soak up these large quantities.

Some buyers are opting for Group II as the price differential between it and Group I becomes more indistinct, and as cutbacks in light Group I production limit options.

Prices are moving, but assessments have put light vis grades 70N to 220N at $495/t-$510/t, with higher vis grades 500N and 600N at $610/t-$645/t ex tank Antwerp-Rotterdam-Amsterdam. Many of these grades are priced on a delivered basis which will reflect higher prices, taking account of handling and truck or barge costs.

Group III markets around Europe are relatively quiet, with players perhaps biding time. With a monthly pricing model generally applied to sales, suppliers indicated that Feb. 1 will see a price overhaul with retrospective allowances maybe being applied to January deliveries.

One new arrangement has seen a large cargo shipped from Spain to India, stemming from the relatively new European production of Group III.

Prices remain as last reported but downward movement may take place during the next two weeks for some suppliers. Levels are 780/t-795/t ex tank Antwerp-Rotterdam-Amsterdam in trucks, for both 4 centiStoke and 6 cSt grades.

Baltic and Black Sea

Baltic trade has been subdued, at least from a negotiating standpoint. This did not interfere with one large 12,000-13,000-ton cargo loading from three Baltic ports for Apapa, Nigeria. A large part of the cargo comprised of SN900. Other monthly contract business was also fixed into Antwerp-Rotterdam-Amsterdam, making up the sum total of exports from this region during the last two weeks. Prices for the large parcel were not disclosed but other distributors in the region pegged SN900 at $535/t-$545/t FOB and SN500 around $485/t.

SN150 and SN500 are offered at $425/t-$440/t and $495/t-$510/t, respectively, for February or late January loading.

Black Sea receivers in Turkey have issued a number of enquiries for Russian and Uzbek base oils. Buyers have openly declared that they are not looking to purchase large quantities at this time, but some have formed what could be called cooperatives to take material into tank and divide the quantities between receivers. This maintains bulk prices, whist not loading inventories at prices which may fall further.

Russian SN500 has been confirmed in offers at $535/t CIF Gebze, Turkey, for a parcel of some 3,000 tons.

One large parcel ex Port Kavkaz, Russia, has been loaded for United Arab Emirates, and bearing in mind comparable quality on Iranian SN500 exports now available in Middle East Gulf regions, the cargo is possibly comprised of SN900. Prices for this grade are being kept strictly private and confidential, although U.A.E. importers have alluded to material arriving at around $685/t CIF/CFR, which might netback after deducting freight and trader margin to around $545/t FOB.

Middle East Gulf

Red Sea reports contain some news regarding exports from U.A.E. finding their way into Jordan through Aqaba port, suggesting that Jordanian blenders are about to use Iranian exports, replacing base oils from the incumbent suppliers. With one cargo booked and enquiries for additional material, this trade could add another route for the already expanding Iranian export trade.

Middle East Gulf base oil markets are taking stock after the announcement of the official withdrawal of Iranian sanctions. U.A.E. will be particularly affected by the increase in trade as will the opening up of Iranian markets to Group II and Group III producers.

As Iranian producers push more and more Group I exports, the majority to date have landed in India. This week its rumored that one parcel at least has been closed at sub $400/t levels in respect of SN500. This aggressive pricing model is buying back market share lost to sanctions, and will certainly affect supply dynamics.

Prices in respect of higher specification Group I base stocks are also becoming more competitive with Far East FOB prices becoming lower and freight into Middle East Gulf attracting a number of movements. This will bring pressure on European and other Middle East Gulf Group I production to either come into line or forsake market share. Levels are retreating to $485/t-$520/t for light and heavy solvent neutrals, but bright stock is landing into Middle East Gulf ports at $880/t-$945/t.

SN900 ex Russia is becoming attractive against bright stock, and although direct substitution will not be the case, the use of heavy solvent neutral grades is invaluable in Middle East Gulf markets. This grade is assessed at around $685/t CFR U.A.E.

Group II offers into Middle East Gulf receivers have restarted with prices much lower than those seen prior to yearend. Levels now have fallen to $485/t-$510/t for light vis grades, with heavier material being pushed hard at $560/t-$585/t basis CFR/CIF. Buyers are still wary in terms of prices falling even further and although many are now looking to replace inventory, they are still playing a dead hand when decision time arrives.

Africa

With East African importers waiting for prices to bottom out, it is surprising to see blending operations continuing without the support of the usual quantities of imported base oils. Some players say they can use local supplies until import prices become more attractive.

South African traders and importers are also remaining out of the market at the moment although a couple of small enquiries have been issued for SN500 and bright stock in flexies for import into Durban.

West African imports are arriving almost daily from Baltic and European sources, having been loaded towards the end of December. Receivers say that stocks will now be high against new lows in regional finished lubricants demand, which will last until at least mid-year, according to some. Traders, however, are now back assessing when will be the right time to lay hands on available base oils which are priced at the bottom of the market.

Ghana sees another contracted cargo loading out of Italian Mediterranean, along with some smaller quantities to be discharged into Guinea or Cote d’Ivoire.

With large cargoes loading out of the Baltic, the economies of freight savings and margins are lucrative against parcels of 5,000-6,000 tons. Prices for cargoes currently discharging into Nigerian ports are maintained, but material loading now is estimated to be $25/t-$50/t lower with corresponding delivered prices. Current numbers are $575/t-$598/t in respect of quantities of SN500 with smaller amounts of SN150 at $494/t. European bright stock has been landed at $898/t delivered CFR/CIF, and may continue to be for further cargoes. Prices in respect of cargo being loaded currently may be $20/t-$30/t lower due to FOB levels. Russian export SN900 loading prompt will arrive into Apapa at around $628/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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