EMEA Base Oil Price Report

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Base oil buyers, traders and sellers are absorbing news from last weeks ICIS World Base Oils & Lubricants Conference in London, along with this weeks I.P. Week in the same city. Among the main topics of discussion was an API Group II plant now under construction at ExxonMobils refinery in Rotterdam. Attendees also chattered over Saudi Aramcos announcement that it will market a full line of Group l, II and III stocks.

The mood was bullish overall with a general consensus that base oil prices are firm, that crude oil prices could climb higher and that supply issues could cause at least short-term availability issues for some grades. Several Group I and II plants are due to begin scheduled maintenance turnarounds in the next few months, and there is concern that problems at the Pearl gas-to-liquids plant in Qatar could drain availability of Group III. Some conference attendees suggested that a market that has been bathed in surplus could tighten significantly.

Behind the scenes there were rumblings about crude production and export cutbacks that were agreed to by OPEC members and other big oil producers. Shipping analyses have suggested that virtually no member of the agreement has abided by the protocol. It also appears that fracking in the United States has accelerated and can now tolerate current crude prices. Both of these developments raise the possibility of renewed surpluses that could push prices down.

Dated deliveries of Brent crude went for $56.65 per barrel yesterday, while West Texas Intermediate was priced at $54.40/bbl, both for April front month settlement. ICE LS Gas Oil is posting at $497 per metric ton for March front month. All of these levels were almost identical to last week, perhaps showing crude as a stable market.

Europe

European base oil prices are firmer this week, with API Group I light grades remaining tight. Light neutrals rose $20/t-$25/t and are now between $590/t and $625/t, while SN500 and SN600 climbed $10/t-$20/t to $625/t-$665/t. Bright stock remains weaker, although the low numbers rumored last week have now been ruled out, and is now offered at $695/t-$775/t.

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

Local European markets are quiet this week with few developments on the pricing front. Buyers and sellers agree that Group I grades face upward pricing pressure since replenishment shipments coming into storage are subject to markups that the regional market has not yet implemented.

The differential between domestic prices and exports is wider this week, now assessed at 65/t-95/t, smaller for light grades and greater for heavy oils.

European Group II prices continue to rise as importer suppliers try to catch up on increases imposed in source markets. The size of increase varies from one buyer to the next and between suppliers, so the picture is complex. During the last seven to 10 days, prices have risen $20/t-$30/t, so light grades delivered in bulk into European supply hubs are now assessed at $695/t-$720/t, and heavier grades are $795/t-$825/t, basis CIF. FCA levels will be in the range of 690/t-710/t for 100N and 220N, and 600N is 785/t-825/t

Problems at the massive Pearl plant, part of a joint venture between Shell and Qatar Petroleum, were discussed, exaggerated, expounded upon and fantasized over. In the absence of definitive information from managing partner Shell, observers are assuming that the disruption will be significant, creating a substantial gap in the Group III market that will have to be filled from alternative sources.

Some say the problem at Pearl could soak up the surplus that has hung over the market, bringing Group III supplies and prices back into line. But if normal production at Pearl resumes the impact of the disruption could be temporary and the surplus return to that sector.

One thing is clear: Sellers have reacted by seizing the opportunity to hike prices, and upward pressure may still remain. Rates for 4 centiStoke and 6 cSt grades with full slates of original equipment manufacturer approvals are now $760/t-$795/t, FCA Antwerp-Rotterdam-Amsterdam, with 8 cSt oils at 725/t. Prices for CIF cargoes delivered into major receivers have not been revised yet but could face increases soon.

Baltic and Black Seas

Baltic loading has been slow over the past week, with only one parcel of Russian export Group I moving into Antwerp-Rotterdam-Amsterdam, and a slightly larger cargo being delivered into the United Kingdoms east coast. With turnarounds affecting some of the Baltic suppliers and resellers, this temporary lull may last another couple weeks.

There was no word from the London conference of major negotiations for Baltic shipments to West Africa, and some sources said cargoes were to be organized during from suppliers along the Mediterranean or the U.S. Gulf and East coasts for delivery into Apapa, Nigeria during the second half of February. Potential buyers advised that they were frustrated by lack of suitable available material to load from Baltic ports but that they hoped some would become available by March or April.

Prices have risen, and SN150 now goes for $535/t-$560/t and SN500 for $575/t-$595/t, basis FOB. SN900 is available in bulk only from one source at prices believed to be around $655/t FOB, based on a net-back calculations.

Black Sea trading is missing again this week, with few Russian or Uzbek cargoes being offered or being the subject of inquiries from Turkish receivers. There is an inquiry for 3,000 tons of SN150 being floated for Black Sea or Mediterranean loading, but with this grade being relatively short at acceptable prices, covering this inquiry may be difficult.

Regular supplies from Greece are flowing into Derince, Turkey, with Group I prices assessed at $620/t-$630/t for SN150 and $655/t-$670/t for SN600, CIF Turkish ports. The hot news this week is that one of the largest cargoes yet seen is to load out of Kavkaz, Russia, with destinations in United Arab Emirates and Singapore. This parcel of almost 18,000 tons may include SN500 and SN900 since the arbitrage between the Black Sea and the Middle East Gulf may be open for both these grades. Prices for Russian SN150 are now established at best at around $495/t, FOB/STS, with SN500 on same basis at $565/t.

Shipping in this region is still subject to ice build-up around the more northerly Black Sea ports, although reports received last weekend suggest that all major channels and approaches to main ports are now open and functioning.

Reports from Red Sea sources suggested that another cargo is being sought for Sudanese receivers, for delivery during March. This inquiry may attract the attention of traders from outside the immediate area as was the case previously, or the requirement may be covered by regular incumbent suppliers.

Middle East Gulf

There are a number of regular inquiries for vessels to load out of Yanbual Bahr, Saudi Arabia, for shipment to the Far East with regular contract supplies to Oman and the United Arab Emirates.

Much of the discussion in the Middle East Gulf this week centers around efforts of Group III suppliers to step into the gap caused by production problems at the Pearl plant. Substitution is not a simple matter, since the OEM approvals held – or not held – by different suppliers varies. But observers believe that plants in Bahrain and Al Ruwais, U.A.E., will be tapped in the short term.

Group III prices in the region have already reacted to the situation as indicated by confirmation from receivers in India that suppliers from Bahrain and the U.A.E. have implemented hikes of $70/t-$120/t. Other destinations such as Europe and the U.S. are also to be affected, with bulk delivered prices to agents or distributors being increased at next delivery. In reporting estimated FOB prices ex-Al Ruwais, this boosts netbacks to at least $695/t in respect of 4 cSt and 6 cSt oils.

Traffic of Group I shipments out of Iran have been quiet amid rumors that prices have been hiked by up to $50/t, which would now place superior SN500 FOB at around $720/t and lower spec SN500 at around $670/t. It is unclear whether these increases have actually taken place or, if they have, whether they may be due to the latest run-up in crude prices or whether Iranian exporters are taking advantage of increases in Europe and the Far East.

If this move is confirmed, then the arbitrage from sources such as Black Sea could be open to supply Group I grades into the region.

Contract barrels of Group I grades going into receivers in Oman and Fujairah ex Red Sea are assessed higher this week: $625/t for SN150, $675/t for SN500, and $885/t for bright stock, all CIF/CFR.

Group II offers from Far East have increased dramatically over the past couple of weeks, and with U.S. suppliers declaring a lack of export barrels for the time being, offers for Group II spot trades are missing from the slate. Group II grades are now quoted between $625/t-$645/t for light grades, $810/t-$845/t for SN500, and $845/t-$865/t for SN600, CIF Middle East Gulf. Deliveries of smaller parcels of Group II base oils carry premiums of $45/t-$90/t dependent on parcel size, delivery mode and distance from hub storage in U.A.E.

Africa

Another South African cargo from the U.K. and Antwerp-Rotterdam-Amsterdam is loading for discharge into Durban. This regular parcel route is taken to supplement local supplies.

Meanwhile North African Mediterranean trades report Egyptian deliveries of bright stock along with Italian supplies loading for Tunisia and Morocco.

West Africa shipments are few, with only one confirmed cargo loading to supply the Ghana tender. Few other movements have been reported, and many receivers and buyers attending the London base oil conference were downcast about the scene in Nigeria. They complained about lack of government support for base oil imports into Nigeria and of continuing shortages of foreign currency at local banks. Without this access to currency, banks are unable to open payment instruments such as letters of credit or bank guarantees, which are key parts of normal base oil transactions.

Many have tried work-arounds but without success. Some traders have offered open credit facilities to certain receivers, but without the system to transfer funds, this is a precarious and risky trade, not against the trust between seller and buyer, but due to the inability of the buyer to transfer funds out of the country without payment instruments.

Some buyers are still looking at supplies out of the Baltic and the Mediterranean, but a growing number are finding U.S. supplies more competitive. But U.S. Group I availabilities have tightened, with cargoes from the U.S. Gulf and East coasts being targeted into India, where trade is easier and more efficient.

Base oil prices in Nigeria are now estimated at $685/t-$720/t for Group I solvent neutrals and $870/t-$895/t for bright stock. SN900 ex-Baltic would be priced at around $795/t-$820/t. These prices are CFR/CIF rates in Apapa port, Nigeria.

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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