EMEA Base Oil Price Report

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After an agreement by OPEC and other oil-producing states to limit output, crude prices spiked several times the past few days.

But the market is skeptical about the likelihood of countries adhering to their commitments – which in truth called for limited cutbacks – so it remains to be seen if the global oil glut will be curbed.

Crude prices peaked earlier this week when final ratification of’ The Agreement was published but then retreated to last weeks levels. After reaching $57 per barrel, dated deliveries of Brent crude settled yesterday around $55.70/bbl for February front month settlement. West Texas Intermediate followed that same trend and is now pitched at $52.95 but for January settlement. ICE LS Gas Oil now sits at $491 per metric ton in front month January, some $20/t higher than last week.

This of course exerts upward pressure on base oil prices throughout Europe, the Middle Easter and Africa, but trade is quiet with a number of commentators stating that the markets expected feedstock hikes and that buyers had already restocked inventories. Consequently, sellers have floated offers that contain markups, but so far there are few buyers. This stand-off was forecast and is not a surprise. Selling sources said they are keeping tabs on raw material costs and will offer base stocks accordingly.

Some buyers insist that certain sellers will have to discount prices to reduce inventories at year-end. Some buyers are waiting like hawks in case this transpires.

European API Group I prices are unchanged for completed transactions, but offers have been reported $10/t-$25/t higher than last week. Solvent neutral 150 is still short and offers range between $520/t and $535/t, while SN500 and SN600 are being pitched at $565/t-$585/t. Bright stock offers appear to have risen by smaller increments and now lie in a narrower range of $795/t-$820/t.

The prices above refer to large parcels of Group I base oils supplied or offered FOB ex-mainland European supply points.

Group I prices for sales within Europe are unchanged this week. Offers will certainly be higher at the end of December and in early January, but at this time there are few buyers in the market as most operations prepare for the holiday season in Europe. Traditionally some plants will all but close for two weeks leading into the New Year. The differential between domestic price levels and exports is maintained this week, 25/t-85/t.

Group II prices in Europe and its satellite markets appear to be under upward pressure, though no changes are likely the rest of this month. Sellers in these markets may take their lead from source suppliers who are located in other regions and possibly imposing hikes. Unsurprisingly, there are no reports of Group II discounting during December, but neither is there a rush from buyers.

CIF prices are unaltered for Group II imports carrying finished product approvals, with light grades between $555/t-$585/t, and 500N and 600N at $725/t-$785/t. Ex-tank prices are likewise level at $25/t-$40/t (20/t/t/t-35) higher.

Anticipation surrounds European Group III prices. The global glut for these grades is perhaps most acute in Europe, and the arrival of shipments from new sources has created a near-nightmare for marketers. Some participants seem bent on grabbing market share, while others defend their slices to the point of negative margins. Investments in new Group III plants are too large for suppliers to pull back, partly because of consensus that demand will eventually catch up to supply. For now, the time lag is a problem.

Prices for 4 centiStoke and 6 cSt Group III oils bearing approvals remained around $680/t (615/t), FCA northwestern Europe, with little trading expected the rest of this month. Lower end prices for stocks carrying a full range of approvals, FCA Antwerp-Rotterdam-Amsterdam, are still 705/t-735/t for the 4 cSt and 6 cSt grades, with 8 cSt material around 670/t. CIF prices for large cargoes of Group III base oil are said to be $50/t-$75/t lower.

Baltic and Black Seas

Baltic trade appears to be slowing even more ahead of the holiday season. As noted last week, a large cargo assembled from multiple ports is now loaded with 12,000 tons of various Group I grades bound for Nigeria. This may be the last big parcel to move out of the region this year. Shipments ranging from 2,500 tons to 4,000 tons are being loaded for Antwerp-Rotterdam-Amsterdam and the east coast of the United Kingdom, and these will probably be the last cargoes of any size in 2016. Prices are reported stable to firm, but they are under upward pressure.

Russian SN150 is still short, although Belarusian material is available at much higher prices, due to its higher specification. FOB/FCA prices for Russian SN150, SN500 and SN900 are $495/t-$520/t, $525/t-$545/t and $595/t-$620/t, respectively.

Shipping and market reports suggest Turkish receivers have closed until the New Year. A single cargo is reported moving from the Mediterranean into Marmaras or other ports on Turkeys west coast, and it appears to consist of Group III bound for a distributor. No traffic was reported coming across the Black Sea. Prices are difficult to gauge at such times.

Offered Group I prices from Greek, Italian and Spanish sellers rose this week, though a lack of buyers may render this an exercise. SN150 is primed at $525/t-$545/t and SN500/600 at $595/t-$625/t. Bright stock is punted around $870/t, CIF Gebze or Aliaga,Turkey.

Middle East

Red Sea reports described an enquiry that was floated some time back for Sudanese receivers of up to 6,000 tons of Group I. As an alternative, traders explored the possibility to meet this requirement from a U.S. Gulf Coast source. This trade will probably be covered by incumbent suppliers working through logistically advantaged Red Sea ports. Other activity reveals contract and spot cargoes moving to United Arab Emirates.

Middle East Gulf markets appear to be targets for a number of imported Group I cargoes moving from U.S. Gulf Coast, Brazil and Pakistan, while at the same time there appears to be an exodus of Iranian Group I and large quantities of Group III. The Middle East Gulf has become a multi-directional hub for numerous types of base oil, awaiting perhaps the last part of the jigsaw – Saudi Arabian production of Group II that is scheduled to begin in a year.

Group I SN500 from Iran continues to play a major part in the export scene, with a number of parcels being assembled for delivery to the United Arab Emirates and others moving to the West Coast of India and to Pakistan. Loading is recorded at the southern ports of Bandar-e Emam Khomeyni and Bandar-e Emam Khomeyni.

FOB prices for superior spec SN500 are around $610/t, and suppliers are trying to impose hikes on the back of rising feedstock prices. FOB prices for smaller volumes of Iranian SN150 and SN650 are around $565/t and $525/t, respectively. Imported and re-exported Iranian SN500 ex-U.A.E. rose can is being offered around $615 FCA, or $625 FOB.

Prices for incoming Group I cargoes from Brazil and U.S. are estimated to be around $595/t, CIF, for SN500/600, $825/t for bright stock. European and Red Sea material is expected to be delivered around $575/t for SN150, $6435/t for SN500 and $885/t for bright stock.

Group III exports from Al Ruwais, U.A.E., and Sitra, Bahrain, continue, with OEM-approved material from Bahrain stealing an edge on the new production ex-Abu Dhabi. However, seems just a question of time before the new production receives approvals. The material is produced using almost identical technology, with only slight feedstock differences that can be accommodated. FOB prices for 4 cSt and 6 cSt grades are estimated and assessed sub $600/t, with one instance of $545/t reported.

Group II receivers have looked at parcels of Far Eastern sourced material coming into the U.A.E. – stocks that have been used regularly to make electrical transformer oils in Hamriyah. These oils are thought to be purchased in conjunction with cargoes discharging into Indias West Coast where affiliate trade is based. Prices for large volumes of Group II remain at $505/t-$525/t for light viscosity grades and $660/t-$675/t for SN500/600, CIF Middle East Gulf.

Africa

Short sea trade cargoes are reported in cross-Mediterranean and coastal Spanish and Italian trade this week, with parcels of 1,000 tons to 2,500 tons moving into satellite ports for distributor operations. There is one possible cargo being worked out of the U.S. Gulf Coast for discharge into Tunisia, which is certainly not a normal movement, but with Group I prices keen, this may be an attractive proposition.

There is good news in Nigeria: The OPEC agreement allows Nigeria to increase crude exports, which ultimately should relieve foreign currency shortages that have dogged the market for many months. The 12,000-ton Baltic cargo has been fixed and will arrive into Apapa around mid-January. It is not clear whether this cargo has been delivered on an open credit basis or whether some form of offshore funding was employed to at least guarantee payment.

U.S. material offered to Nigeria receivers a month ago has been redirected to alternative receivers in the Middle East Gulf and Indias West Coast. According to sources, these actions have been taken because of the lack of secure payment guarantees.

Prices are exceptionally complex because of base oils being delivered from various sources, with different qualities and specifications, and even through varying means of delivery, such as bulk or flexitanks. In an attempt to make some sense of the scene, certain assumptions have been made regarding a hypothetical bulk cargo out of the Baltic and the levels at which that parcel would be pitched.

Assuming a cargo of four grades, SN150, SN500, SN900 and bright stock, prices would be estimated at $635/t for relatively small volumes of SN150 in bulk; $685/t-$720/t for SN500; $925/t-$945/t for bright stock; and around $825/t for SN900, all on the basis of CFR/CIF Apapa.

Material delivered in flexies ex-Baltic for Russian SN150, SN500 and SN900 might be offered at $795/t, $820/t and $945/t, respectively, CIF Apapa.

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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