EMEA Base Oil Price Report

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API Group I base oil prices in Europe, the Middle East and Africa continue to slowly weaken, chipped away as buyers throw gradually increasing counter offers at sellers who resist as long as possible before giving in with markdowns of a few dollars here and there.

Group II prices are staying steady throughout these regions, particularly in Northwest Europe where large volumes of Group II stocks have been arriving from producers in the United States. Group III stocks face growing pressure from an ever-increasing oversupply that has no end in sight.

Some players say that upcoming turnarounds at principal European Group I production units may lead to temporary shortages that open the door to replacement by Group II grades. Needless to say, these views are mainly held by Group II sellers. Group I sources counter that inventories have been bolstered and that material in tank can more than cover demand during maintenance periods.

Crude oil prices could impact the situation, but most pundits are awaiting the outcome of OPEC talks in Algeria this week, which will be followed by talks between OPEC and Russia next week. From preliminary discussions, it would appear that no broad agreement has or will be reached between Saudi Arabia and Iran, the latter of which looks to expand production levels from 3.8 million barrels per day to around 5.6 million b/d. This would only exacerbate the current oversupply and further depress prices.

Crude costs rose and then fell this week, with dated deliveries of Brent crude slipping to $46 per barrel yesterday while West Texas Intermediate lodged at $44.60/bbl, both for November front-month settlement. ICE LS gas oil, a barometer for refined products, was trading at $409 per metric ton, still for October settlement. These levels are broadly in line with last week, suggesting that no firm trend has yet been established or identified for the direction of crude numbers.

Europe

European Group I base oil prices are around $5/t lower both at the high and the low ends of the spreads. FOB levels for light solvent neutrals are now offered at $475/t-$495/t, with SN 500 and SN600 now $560/t-$580/t. Bright stock offers are seen at $860/t-$890/t. Ultimate transaction prices may be a little lower as a result of buyer counters.

The above prices pertain to large cargo-sized parcels of Group I base oil supplied or offered on an FOB basis ex mainland Europe.

Domestic or inland prices for Group I grades in Europe are also slowly weakening, with some buyers prepared to wait until the end of the month before requesting price reviews. With a measure of stability hitting the market, buyers are looking towards the last quarter of the year when demand traditionally drops. Buyers reported no shortages of Group I, and some said that they were using increased volumes of Russian exports, which are cheaper and only marginally inferior to mainstream production. Prices appear unlikely to change, at least until the end of September. The differential between export selling levels and domestic prices widened slightly due to export numbers falling and is now assessed at 80/t-115/t.

Group II marketers within Europe are pushing the shortage angle, with a number of large buyers trying to convince blenders that Group II is the future. Suppliers describe temporary shortages – which have not been confirmed – and warn that this is the time to switch from Group I. Making that change is not simple given storage, formulation and logistic considerations. Large volumes of these grades are being imported into France and Antwerp-Rotterdam-Amsterdam, and new European production is scheduled to come to market next year.

Prices are flat, with only one U.S. producer trying to impose hikes of $20/t-$30/t. These increases appear to have been selective, so this column is reporting the same prices as last week: $585/t-$630/t for light-viscosity grades and $725/t-$785/t for 500N and 600N, most prices being in euro equivalent. A premium of 50/t-120/t will be applied to volumes redelivered to secondary or distributor storage locations or for product delivered by truck.

Group III prices are reacting to the increasing availabilities of these products around Europe – the result of imports from new sources and flat demand. Prices heard from new offers, particularly to major buyers, have been very low and are obviously being pitched in this way to gain a foothold in the existing environment. Prices for material supplied to major buyers are rumored below 700/t, basis CIF.

Other prices quoted in this report only refer to material sold on an ex-tank or delivered by truck from Antwerp-Rotterdam-Amsterdam or other sales points in Spain and France, and are to be realigned after Oct. 1, which will be reflected in next weeks report. Grades of 4 centiStoke and 6 cSt are 750/t-770/t while 8cSt oils are 740/t.

Baltic and Black Seas

Market statistics show a record volume of Russian exports exiting through Baltic ports such as Riga, Liepaja and Ventspils, Latvia, along with Kaliningrad, Russia. Some are bound for West Africa, others for mainland Europe. The latter are filling the vacuum left after the closing of several key Group I refineries this year and during 2015. With prices stable to weak, Russian imports are having an impact. FOB levels are slightly lower this week with solvent neutral 150 between $470/t-$490/t and SN500 around $540/t-$560/t. SN900 is around $660/t FCA, with SN1200 estimated at $685/t FCA.

Turkish receivers have taken one 2,500-ton cargo of Russian oil ex Kavkaz, which is assumed to be SN500. Delivered prices for this shipment are estimated to be around $585/t CIF Gebze, Turkey, while prices for Mediterranean-sourced Group I material to the same destination are around $520/t for SN150 and around $595/t for SN500. Bright stock is offered at $882/t CIF this week.

There are no further reports of giant cargoes loading out of Kavkaz for receivers in the United Arab Emirates, with one receiver in that region confirming that the U.A.E. market is having difficulty absorbing SN900. Large cargoes shipped previously may have been comprised of SN500 and SN150, which may have been heavily discounted due to efforts to move around 20,000 tons out of the local area.

Volumes of Group II base oils are also finding their way into the Turkish market, with bridged supplies traveling from Antwerp-Rotterdam-Amsterdam into Gebze.

Middle East Gulf

Red Sea shipping enquiries reveal the Aqaba, Jordan, requirement being reexamined from Spanish or Italian sources. Greece is not figuring as an alternative, perhaps due to turnarounds. For Saudi Arabian Group I base oils, there are signs of further movements from Yanbu and Jeddah.

Group I still accounts for the rump of trade into and out of Middle East Gulf ports. Theres less Iranian material than there was previously, with only one possible cargo of rubber process oil being identified from Bandar Khomeini, Iran, to China. Sources confirm that there has been little change in Iranian SN500 prices over the last few weeks, with October levels stable. Mainline exports of the higher-spec SN500 are around $595/t ex Bandar Bushehr in offers into Far East and India, although there are some reports of buyers looking at bids of $560/t-$570/t FOB, possibly in response to lower numbers in Indian and Far East markets, where it will compete. SN150 is estimated at around $495/t with SN650 at $485/t. All prices refer to FOB sales.

Group III exports show no signs of slowing, with a number of enquiries for vessels to take quantities from Bahrain and Al Ruwais to the U.S., Europe, India and the Far East. The battle has started over retaining market share in all these markets with incumbent suppliers having to discount prices fiercely to major buyers to maintain supplies to these outlets. Even without approvals, new material can compete with existing supplies based on specs.

Indication prices for 4 centiStoke and 6 cSt grades FOB levels may be heavily discounted, at $685/t-$725/t.

With little Group II activity reported this week, prices remain unchanged in respect of large parcels going into areas such as the U.A.E. for redistribution to satellite receivers around the Middle East Gulf. Light vis imports are maintained at $600/t-$625/t and heavier vis 500N and 600N are $750/t-$775/t CIF.

Africa

East African and South African traders have issued a number of smaller enquiries for Group I SN150, SN500 and bright stock, all of which would be delivered into ports such as Mombasa, Kenya, and Durban, South Africa, in flexies. Offers of $655/t for Russian SN500 have been seen, with SN150 at $585/t and a type of bright stock with lower spec than mainstream product at $835/t, all basis CIF East African and South African ports. European rerefined SN150 has also been heard in discussions with South African receivers who are looking at taking around 200 tons in flexies as a trial. Prices have been estimated at around $525/t CIF.

Another raft of around 30,000 tons of Group I base oils has been booked for discharge into Nigeria within the next month. Sourced from Baltic, northwestern Europe, Mediterranean, and the U.S., these cargoes will load during the last days of September.

Prices for small quantities of Group I SN150 landed into Nigeria are assessed downwards by $10-$25/t, to be delivered CIF/CFR at $570/t. Alternative quantities of this grade in flexies are priced at around $665/t. SN500 is assessed at $610/t-$620/t. Bright stock either ex Europe or U.S. will land into Apapa at around $925/t, with Russian export SN900 discharging at about $775/t CIF/CFR.

Supplies of the European rerefined SN150 are still on offer within Nigeria at $575/t for truck or flexi delivery. CIF levels are confirmed at $545/t for deliveries to container terminals in Lagos.

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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