EMEA Base Oil Price Report

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Amidst concerns about availabilities of certain grades, base oil markets in Europe, the Middle East and Africa continue to show strength as prices firmed across the board.

A number of European refineries are undergoing major maintenance turnarounds this spring, suggesting that lower than normal volumes will be available for spot sales, particularly exports. This may apply more to API Group I stocks than Group II or III.

In the background, crude oil prices remain relatively stable and continue to trade in a narrow range. Dated deliveries of Brent crude posted yesterday around $56 per barrel for May front month settlement, while West Texas Intermediate crude, still for April settlement, was selling at $53.20/bbl. Doubts persist production cuts vowed publicly by oil producing nations, so crude values seem likely to remain flat or weaken. ICE LS gas oil, an indicator of oil products, trades at $488 per metric ton this week, almost identical to last week.

Europe

European Group I exports continued to firm this week, with most offers reflecting an increase of $10/t-$20/t and buyer counters an increase of $10/t mark. Light grades such as solvent neutral 100 and SN150 continue to be in short supply and are now trading at $600/t-$625/t, and SN500 and SN600 featured offers of $645/t-$670/t. Bright stock appears stronger this week – some $20/t higher according to some reports, although some traders claim ability to buy at much lower levels. Offers are now pitched between $715/t and $775/t, depending on quality, quantity and location.

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

In local European markets price hikes were applied from March 1 for many buyers, but haggling continues, adjustments may yet be made for some Group I oils. Sellers maintain that they face cost increases from refiners, while buyers claim that markups are too much too soon and argue at least for staged increases.

The differential between domestic prices and export prices narrowed decreased to 40/t-65/t.

Group II prices may have reached a plateau. Sellers claim that increasing feedstock costs could create upward pressure on base oils, but this is a clouded argument since crude and feedstocks appear to be stable or weakening. Suppliers also warn that availabilities of these grades may tighten due to maintenance shutdowns and demand from other regions.

Prices for Group II oils landing into European terminals are unchanged this week, $690/t-$710/t, basis CIF, for light grades and $810/t-$825/t for heavier grades, mainly 600 neutral.

These CIF prices in turn will yield FCA levels of 695/t-720/t for light grades and 830/t-865/t for 600N.

Group III prices continue to trend upward due largely to growing uncertainty about effects of a halt in production at the Pearl gas-to-liquids joint venture between Shell and Qatar Petroleum in Ras Laffan, Qatar. The effects of this disruption will probably be global. There are reports this week of customers using the GTL “PurePlus” grades receiving notices of allocation, which will limit the amount of product going into various blending operations.

Prices for local European sales of Group III rose again this week to $755/t-$780/t (720/t-740/t) for 4 centiStoke oils and $765/t-$790/t for 6 cSt, FCA Northwestern Europe. Fully approved oils FCA Antwerp-Rotterdam-Amsterdam are now assessed at around 785/t-815/t for the two main grades, with 8 cSt material around 755/t. The devaluation of euros against the dollar is also piling pressure on sales made in euros.

Baltic and Black Seas

Baltic trade is still relatively quiet, with few large cargo fixtures or inquiries hitting the market. Prices have moved upward, reflecting not only the European hikes of the past few weeks, but also higher ex-gate prices at Russian refineries. Cargoes of 3,000 to 5,000 tons are moving, however, from ports such as Riga and Liepaja, Latvia, to Antwerp-Rotterdam-Amsterdam and the east coast of the United Kingdom. Demand appears buoyant, with a number of blenders and resellers using Russian exports to replace or augment the Group I avails from Northwestern Europe.

Availabilities of SN150 appear to growing after a couple months tightness. In the lower Baltic, bright stock is available in substantial volumes of around 2,000 tons per month, although larger parcels can be arranged.

Prices are now assessed at $560/t FOB for SN150 and around $620/t for SN500. SN900 is being offered for late March/April loading at around $680/t FOB. Smaller volumes of all grades are being offered in flexitanks for shipment to West, East and South Africa, and to receivers in South America where Group I supplies appear short.

Black Sea reports suggest that another mega cargo is being planned ex-Kavkaz, Russia, with quantities heard of 20,000 tons or more. These amounts will be offered to receivers in United Arab Emirates, the West Coast of India and Singapore, where previous cargoes have been discharged. This latest parcel is being discussed for end of March loading. Smaller Mediterranean sources continue to serve buyers in Derince, Turkey.

Mediterranean oils remain $635/t-$650/t for SN150 but have risen to $685/t-$700/t for SN600, all CIF Turkish ports. Russian Group I oils are now established at $565/t for SN150 and $645/t for SN500, FOB/STS. All prices have moved upwards this week, bringing Turkish CIF into line with European export numbers. The levels quoted previously referred to material which was bought around mid-January and did not include the latest round of price increments since these cargoes were purchased on an index-related basis.

Red Sea reports mention only routine traffic of cargoes loading out of Yanbu and Jeddah, Saudi Arabia, for delivery to Oman and Fujairah, U.A.E. or Indias West Coast.

Middle East Gulf

The disruption at Pearl remains the biggest base oil news in the Middle East Gulf. Sources in the U.A.E. still maintain that Group III grades from plants in Bahrain and Abu Dhabi, U.A.E., will be substituted for the output not coming from Ras Laffan and that arrangements are being made for large shipments during the coming months. Negotiations are apparently taking place locally with no input from marketers outside the region.

Prices have continued to rise for Group III grades shipped into Europe and presumably also the United States, India and the Far East. Exact amounts are difficult to ascertain, local re-selling prices in those regions will have risen sharply on the back of what many see as a balancing of the supply-demand picture. FOB levels are now assessed at $745/t-$770/t for 4 cSt and 6 cSt grades and $725/t for 8 cSt.

Group I exports from southern Iran seem to be back in the picture, with a couple cargoes being offered for India and another for Chinese receivers. Prices appear to have risen sharply over the past two weeks, with some reporting offers for SN500 around $730/t, FOB. This sudden upward movement may have curtailed export activity by rendering Iranian stocks uncompetitive against local output and large shipments from Russia.

Confirmation has not been received for prices of Black Sea barrels, but from local re-offers in the U.A.E. suggest values around $685/t for SN500 and $695/t for SN900. With Iranian exports now priced around $725/t for higher spec SN500 and $680/t for lower spec SN500, there may be an opportunity for Black Sea exports to Iran.

The contract supplies of Group I grades from Yanbu and Jeddah into Oman and Fujairah are assessed higher this week, with estimated CIF levels around $675/t for SN150, $720/t for SN500. Bright stock was steady at $925/t.

Industry sources report a mini surge in demand for Group II base oils in the Middle East. U.A.E. operators have expressed interest in large regular volumes coming into the region from Malaysia. Offers of South Korean material are also being sought, but maintenance turnarounds may delay such business. With Luberef scheduled to begin producing Group II in Saudi Arabia late this year, the Middle East Gulf region may at last be awakening to Group II.

Not all Group II grades will go into automotive lubricant production, as a high percentage of imports to this region are being used to make transformer oils and other specialties.

Prices for Group II have increased dramatically over the past month and are now offered at $655/t-$680/t for light-viscosity stocks grades, $845/t-$865/t for 500N and $860/t-$885/t for 600N, all CIF. Deliveries of smaller parcels to other ports located outside the U.A.E. will carry premiums of $45/t-$90/t depending on quantity and distance from storage terminal.

Africa

South African sources reported arrival in Durban of a large cargo of Group I and Group III base oils loaded ex-Northwestern Europe. The recent run-up for Iranian oils made it difficult for re-sellers in the U.A.E. to compete with Russian exports shipped in flexies from Baltic ports. Buyers in Durban and receivers in Kenya and Tanzania have requested offers from Baltic traders rather than opt for material ex-U.A.E.

A number of smaller receivers in Guinea and Ivory Coast are searching for Group I supplies that can be shipped in flexies. Some of these buyers traditionally took material ex-tank on a local basis, paying in local currency and drawing from re-seller storage in the main ports. Now they have grown enough to arrange their own foreign currency and directly transact purchases on a CIF/CFR basis. Most of this business is conducted through external third party traders able to arrange supplies from Baltic and other European locations.

With news of two large Group I cargoes from mainland Europe planned to go into Nigeria, there may be light at the end of the tunnel for the constriction of shipments to Nigeria. Buyers claim that they are again looking at U.S. supplies, but Group I availabilities from there appear to be tightening, so Baltic options may come into play. One trader inquired about a shipment of 12,000 to 15,000 tons from the U.S. or Baltic ports. The U.S. option becomes more attractive due to one port load, whereas the Baltic route may include two or even three port loadings, each incurring charges.

Prices in new offers for Group I base oils to be delivered into Nigeria are now heard to be $685/t-$745/t for Group I solvent neutrals and $875/t-$910/t for bright stock, CFR/CIF Apapa port, Lagos. Bulk Russian SN900 ex-Baltic is being pitched at $795/t-$820/t.

Prices offered for supplies of Group I base oils packed in flexies have been confirmed at $723/t for SN150 and $783/t for SN500, CIF Lagos container terminal. Baltic SN900 is offered at $833/t. These price levels also apply to most other West Africa ports.

Prices in flexies can be extremely competitive relative to quantities being delivered in bulk while also offering flexible delivery arrangements, for example to receivers needing transportation inland without bulk storage and handling costs at discharge ports.

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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