EMEA Base Oil Price Report

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With two large annual industry conferences this week and next, the European, Middle Eastern and African base oil markets have been relatively quiet.

Buyers are still hesitant to commit to large inventories, although most suggest that the bottom of the market is probably close. There still appears to be plenty of material available across all base oil types, and API Group I grades appears to be mostly balanced.

Crude and feedstock prices have weakened further, with dated deliveries of Brent crude at around $30.75 per barrel after it spiked to more than $34 per bbl at the end of last week, while West Texas Intermediate crude has retreated to $28.40 per bbl. ICE LS Gas Oil has also retreated, to around $278 per metric ton for front month settlement.

Europe

European Group I FOB levels have moved little this week. Offers show competitive but not heavily discounted rates, and countering is minor from buyers keen to continue trading through the markets difficult spell.

Cargoes reported have shown little out of the routine, with movements recorded from European Mediterranean to North African ports; Baltic parcels being shipped to northwest European hubs; and West Africa fixtures for Ghana and Nigeria.

One oddball fixture was a cargo of Group I from the Mediterranean to Karachi, Pakistan. This perhaps proves that the arbitrage from Europe to the Indian Ocean is still open, although sources said this trade would be marginal.

Prices remain unchanged with light neutrals at $410/t-$445/t, and heavier grades SN500/600 at $475/t-$510/t.

Bright stock is steady at $810/t-$830/t, although more than one producer has indicated that higher prices may be possible for this grade due to continuing demand for large parcels. Yet some players mentioned the high differential between bright stock and SN500, and suggested that this premium was unsustainable, implying that bright stock prices should recede.

The FOB levels above relate to large export parcels of Group I base oils ex mainstream producers in Europe.

A similar situation appears to be affecting local prices within mainland Europe and the United Kingdom market with buyers and suppliers seemingly reaching agreement on levels for Group I base stocks for dispensing during February. With the euro strengthening slightly against the U.S. dollar, selling levels have been easier to execute.

Prices for February supplies of Group I are now 55/t-75/t higher than the export levels mentioned above, taking account of additional handling and sometimes delivering fees.

European Group II trade continues to grow, with cargoes being imported from sources in Far East and the U.S. The groundwork for the new large facility in Rotterdam appears to be well underway, with parcels of commensurate Group II grades planned to arrive from Singapore in spring. This new Group II production will have a dramatic effect on Europe. With current Group II suppliers already using specifications and approvals to assert market share, the stage is set for an extremely competitive situation unfolding in coming years.

In the meantime, Group II prices are being continually adjusted by sources in addition to local pressures from competitive activity being exerted from alternative suppliers in an already crowded marketplace. Levels for the lighter vis grades 70N through 220N are $445/t-$485/t depending on source and approvals. The higher viscosity grades, having been discounted relatively heavily in past weeks, are now $510/t-$550/t. Prices on a delivered basis or subject to secondary bulk movements will reflect higher prices.

Puralubes conversion of an existing rerefinery in Germany into a 50,000 ton per annum Group III facility will add to an already oversupplied European market. Yet a share of the existing market will always be an attraction to new producers, and of course this product group is forecast to expand enormously over the next 5-10 years, perhaps taking up the slack of a potential oversupply situation.

Prices for the two most used Group III grades within Europe, 4 centiStoke and 6 cSt, are maintained at 845/t-870/t ex tank Antwerp-Rotterdam-Amsterdam.

Baltic and Black Sea

Baltic trade is subdued with few trades apparently completed. Exports of Russian and Belarussian base oils from Baltic ports have become essential movements for the European markets, with a number of monthly contracted cargoes moving down to Antwerp-Rotterdam-Amsterdam on a regular basis. An anomalous 12,000-ton base oils cargo is reportedly being exported from Iran and loaded ex Bandar Abbas, Iran, bound for Gdynia, Poland.

Russian export SN150 and SN500 are reported at the same levels of $395/t-$410/t and $425/t-$445/t, respectively. One offer for SN150 was at $422/t FOB, and one for SN500 was $471/t. These have reportedly been declined by buyers who said levels were some $30/t too high.

Distributors and resellers in the Baltic said they are in negotiations with West African buyers who are travelling for face-to-face meetings next week in London to finalize arrangements for spot and contract volumes. The supply of SN900, offered at $520/t-$545/t FOB, will be central to many of the parcels planned for West Africa, but buyers are expecting levels to be negotiated down to below $500/t. With buying competition fierce, a premium over target price levels may become acceptable.

Black Sea exports of Russian Group I base stocks appear to have been left off the radar this week with few Russian cargoes reported from Port Kavkaz, or Uzbeki material through Batumi, Georgia. There are reported Greek and Italian parcels lined up for February delivery into Derince, Turkey, and Gebze, Turkey, with CIF prices for SN500 estimated at $470/t-$485/t.

With few Russian export movements – perhaps due to weather – European Mediterranean sources are vital, along with alternatives such as Israel. Some Turkish buyers are looking at taking quantities of Russian base oils in flexies to avoid weather problems, and can be competitive against mainstream Mediterranean sourcing.

Middle East Gulf

The saga of the enquiry for 3,000 tons of material to be loaded ex United Arab Emirates and delivered to Aqaba, Jordan, continues – with proposed lifting during the second half of February. One confirmed cargo was delivered from U.A.E. to Sudanese receivers, and with freight costs not dissimilar, this transit may eventually take place.

Iranian barrels are still being offered and sold out of southern Iran ports, with the aforementioned remarkable 12,000-ton cargo proposal ex Bandar Abbas.

Further avails of SN500 from Iranian exporters are arriving into BIK and Bandar Bushehr, with offers for receivers in U.A.E. and the west coast of India. Prices are reconfirmed at $425/t basis FOB, with relative additional freight costs being added for receivers to yield CFR prices of $445/t in U.A.E. and around $465/t for material landing into Mumbai anchorage, depending on parcel size and delivering vessel.

Pakistan receivers are taking 5,000 tons of European Group I grades, possibly predominantly bright stock, although this quantity is considerable for import into Karachi.

U.A.E. buyers are still looking for suitable supplies of bright stock and this Mediterranean-sourced option may be taken up with further offers from this supplier for later avails. Last weeks $887/t offer appears to remain valid for a 4,000-5,000-ton parcel of bright stock, but buyers are holding out for levels which they believe can be below $850/t CFR/CIF.

Middle East Gulf Group II business has been slow this past week, perhaps due to the Lunar New Year in the Far East source markets. Prices therefore are quoted on the same basis as last week, although a couple of potential buyers have said that they expect numbers to come down after the holidays. CFR/CIF prices remain $460/t-$485/t in respect of the lighter vis grades with heavier material at $535/t-$560/t, although in accordance with local reports these prices may get trimmed some $10/t-$20/t.

Africa

South Africa reports no new imports this week, although traders have elected to take quantities of SN500 in flexies ex U.A.E., which are estimated to land into Durban at $585/t-$610/t.

North African receivers in Morocco have bought further quantities from Italian sources along with private Egyptian buyers in El Dekheila. Prices for the three Group I grades being delivered in these instances are $485/t-$495/t, $520/t-$535/t and $885/t-$915/t in respect of SN150, SN500 and bright stock.

Nigerian sources have commented that they are expecting to buy a raft of Group I base oils from Baltic and mainland European sources over the next few weeks following the London base oil conference. Almost without fail, these buyers and receivers in Nigeria and other parts of West Africa are of the opinion that the market will not fall much further and that now is the time to make preparations in respect of prompt and forward cargoes of base oil.

Some are looking at index-linking prices against published reports, whilst others are investigating the uses of an exchange platform for purchasing material forward and facilitating drawdown against pre-purchased stocks, only using the financial liquidity of the exchange and not using traditional banking routes.

Delivered prices contained in preliminary offers are $465/t-$524/t for parcels of SN150 and SN500/600 with bright stock basis CFR at around $878/t. These prices as based on a total cargo of 8,000 tons, comprised of SN150, SN500/600, SN900 and/or bright stock. Baltic SN900 is being offered on delivered basis at $588/t-$625/t depending on source and quantity.

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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