EMEA Base Oil Price Report

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Base oil prices hardened across the board this week as crude oil and feedstock costs rose due to rumblings between Russia and the United States over Syria and signs that OPEC cutbacks in crude output are affecting global supply.

Throughout the Europe, the Middle East and Africa, prices contained in base oil offers and tender submissions have leapt over the past few weeks, and there are still those requirements and enquiries for product that remain uncovered. This column about supply being constrained by maintenance turnarounds at plants that supply Europe, but API Group I availability in Europe is also being affected by the shipment of cargoes to the Far East to help fill gaps caused by turnarounds in that region.

Crude oil prices have recovered ground lost during declines over the past month. Dated deliveries of Brent crude posted at $56 per barrel in London ICE trading yesterday, now for June front month. That represented an increase of some $2 over last week’s listing. West Texas Intermediate crude traded around $52.85/bbl for May settlement, whilst ICE LS Gas Oil is quoted at $495 per metric ton, up $17/t from last week, still for April front month.

Availability is the talk of the base oil market for nearly all grades, though Group I is particularly tight. There are several theories about this scenario. Many buyers and some producers expect availability to loosen after a number of refineries emerge from shutdowns, but some postulate that G7 nations may impose sanctions on Russia as the dust-up over the alleged chemical attack in Syria continues to play out.

At this time, there is nothing to suggest that sanctions would directly affect the export of Russian base oils, which form a small portion of hydrocarbons emanating from the country. But if Russia were subjected to sanctions such as those that were imposed on Iran by the West – and which may be re-imposed – dynamics of the European, Middle Eastern and African base oil scene could change dramatically.

Europe

Against this background, Group I export prices in Europe rose again this week, with spreads widening due to higher offers while deals are still being agreed at the lower ends of the ranges. Crude and feedstock cost increases have given sellers fresh enthusiasm for markups, even though these increases have still to take effect on current base oil output.

Offers from suppliers rose $25/t-$50/t since last week’s, but buyer counteroffers again constrained the amount of increase for actual sales. Light-viscosity Group I solvent neutrals now sell for $675/t-$695/t. SN500 is also pitched higher at $755/t-$785/t, while bright stock is up to $855/t-$910/t.

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

Prices on some long-term contracts rose at the beginning of the month, so there seems to be little appetite among sellers to apply further increases just yet. Some say they are monitoring the situation and will raise prices on replacement stocks if feedstock costs escalate faster. Most sellers are bullish about longer term base oil values, predicting the Group I market will remaining tight or tighten further and revealing they are keen to maximize their selling prices as quickly as possible. United Kingdom sellers said ex-tank prices will rise April 15 due to increases being applied to Baltic FOB sales, a prime source for material being resold in the U.K. Sellers in the Benelux area appear of a similar mind for similar reasons.

With the widening of spreads and ranges for export offers and sales, the differential between domestic and export levels has become even less scientific than normal, but an overall assessment is that the differential ranges from 65/t-120/t depending on grade, specification and location.

Group II activity remains brisk amid reports of a number of very large cargoes being loaded out of the U.S. Gulf of Mexico Coast and arriving into Antwerp. A large Far East supply hub is down for maintenance, but availability nevertheless remains positive. At the same time, sellers have felt compelled to state their commitments to current customers and at this time are not actively seeking new business.

Group II prices remain buoyant and markups implemented at the beginning of the month are becoming apparent in reported prices. Light-vis grades are now assessed at $715/t-$740/t, while 500 neutral and 600N are $825/t-$845/t, CIF Antwerp-Rotterdam-Amsterdam. FCA prices are now around 710/t-730/t for lighter grades and 855/t-880/t for heavies, with delivered prices reflecting extra transportation costs.

Group III prices within Europe are returning to the acceptable netback levels of around a year ago, when the market appeared to be balanced. Since the Group III segment saw tremendous change – first with a large increase in the supply base and later with the sidelining of the giant Pearl gas-to-liquids plant in Qatar.

European prices in euros were steady this week: $780/t-$800/t (720/t-740/t) for 4 centiStoke oils and $800/t-$840/t for 6 cSt, FCA Northwestern Europe. Oils with full slates of OEM approvals supplied FCA Antwerp-Rotterdam-Amsterdam are still 785/t-815/t for 4 cSt and 6 cSt grades and 755/t for 8 cSt.

Baltic and Black Seas

The positive news from the Baltic region is that one of the large cargoes that had been under negotiations in recent weeks was fixed firm. A 12,000-ton parcel loading out of two ports in the upper and southern Baltic was sold into Nigeria, the first movement on this scale for some time. Another deal for Nigeria is understood to be still in the offing and may complete for loading during second half April. A number to smaller cargoes totaling 12,000 tons have been fixed into Antwerp-Rotterdam-Amsterdam.

Prices rose in recent weeks, and some offers that had been on the table were withdrawn by sellers and not re-offered as distributors claimed that supply is becoming short and that prices will have to rise substantially for replacement stocks arriving into FOB storage in Baltic terminals. Offered prices for SN150 rose to $610/t-$640/t and SN500 to $695/t-$720/t, FOB. SN900 has not been offered this week but as an indication is estimated at $770/t-$790/t, FCA.

Black Sea trade remains an enigma. On one hand a number of Turkish tenders remain uncovered, due to reported unavailability of Group I grades. On the other, a parcel of around 9,000 tons of Russian stocks is being assessed to load ex-Kavkaz, Russia, to discharge into Antwerp-Rotterdam-Amsterdam. This odd movement may be designed to alleviate the tight availability for Group I base oils in Northwestern Europe, although it is difficult to figure how the economics of such a cargo might work. Freight for such a cargo is tight in the Black Sea at the moment, so rates may prohibit such a movement unless a specific vessel is looking to be repositioned into Antwerp-Rotterdam-Amsterdam.

At the same time, Group II grades are moving from an Antwerp hub into Gebze, Turkey, for distribution within the Turkish market along with other contract cargoes of Group I SN600 and SN150 ex-Greece into Derince. Larger parcels of 5,000 to 6,000 tons of Group I neutrals will land CIF into Turkish ports at $730/t-$750/t and $790/t-$820/t, respectively for SN150 and SN600.

Middle East Gulf

Group I Iranian base oils have all but disappeared now, with some sources in Iran and the United Arab Emirates suggesting this week that they are being exported to Syria, Lebanon and Jordan. Some offers are being made to receivers in India but they lack indication on shipping dates. Prices for premium SN500 available ex-Bandar-e Emam Khomeyni are still netted back to estimate FOB values of $750/t-$770/t, although sources in U.A.E. maintain that lower priced SN500 is being made available to local traders and can be purchased ex-tank Hamriyah, U.A.E. at $685/t. The quality and specification of this material has not been released, hence this number is taken as being without substance.

Saudi Arabian contract barrels, being linked to index prices, are thought to have moved upwards for receivers in Fujairah and Jebel Ali, U.A.E. and Oman – to $730/t and $825/t, respectively for light and heavy neutrals and $945/t for bright stock.

Group II prices in the region are rising as demand becomes tight. Far East suppliers have declined to offer for at least a couple prompt requirements in the U.A.E., and U.S. suppliers have declared they do not have the avails even for June deliveries. Contrary to comments reported last week, certain blenders told your columnist that they intend to transition to Group II blends as soon as practical and when supplies can be guaranteed. They added that while Group III availability was almost assured, the supply of competitive Group I grades is becoming less than certain, and that the looming introduction of Group II production makes formulation with that grade more attractive.

Imported Group II from majors for May delivery is now offered at $735/t-$775/t for light grades, with 600N at $915/t-$955/t, CIF.

Africa

Small quantities of Group II are being arranged for shipment into South Africa to bolster satellite sales from local distributors. These are in addition to the Group I cargoes arranged from Antwerp-Rotterdam-Amsterdam and U.K. for June arrival into Durban. Local importers in Durban also continue to take delivery. Baltic-sourced Russian material shipped in flexitanks, mainly SN500, is now offered at $820/t-$845/t, CIF Durban, along with re-refined SN150 at $595/t and quantities of a lower spec bright stock at $985/t.

In West Africa, the Ghana tender has been partly covered out of Italy on a stand-alone basis with a 3,000 tons parcel. Except for the Baltic cargo due into Apapa during second half May, no other significant parcels have been declared by receivers in Nigeria, perhaps reflecting a continuation of finance problems.

Prices continue to rise for Group I supplies out of Europe and the U.S., although U.S. avails for West Africa appear to be negligible due to domestic commitments. Buyers in Nigeria are complaining that they cannot purchase base oils at current prices without local finished lubricant prices increasing by around 50 percent. This means that trading imported cargoes is impossible for many at this time, and this will eventually lead to an increase in imports of finished products.

Offered prices are around $25/t higher than the Baltic assessment. Levels applying to the 12,000-ton cargo are expected to be around $695/t for SN150, $790/t for SN500 and $865/t for SN900. Bright stock loading ex-southern Baltic is assessed at $985/t. All these prices are basis CIF/CFR Apapa port.

Re-refined SN150 supplied in flexies remains offered to two importers at around $595/t, CIF Lagos container terminal.

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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