September 9, 2015
Volume 17 Issue 52
EMEA Base Oil Price Report
Base oil markets in Europe, the Middle East and Africa are idling, with neither sellers nor buyers knowing where the market is actually heading despite prices gradually sloping down.
This is compounded by crude price volatility. Dated deliveries of Brent crude spiked to over $54 per barrel some 10 days ago, only to fall back to around $49.70/bbl. West Texas Intermediate followed, and now trades at around $46.00/bbl. Pundits say global markets are awash with plentiful supplies, and that this spike was merely a blip in an otherwise weak market. ICE gas oil has almost maintained last week’s levels for front month settlement of around $483 per metric ton.
Base oil prices have continued their steady path downward. The gradient is not particularly steep, but the direction is apparent.
Group I FOB prices within Europe have slipped, particularly at the top of the ranges, upon pressure from buyers. Light solvent neutrals are $480/t-$490/t with only a handful of offers above $500/t. Heavier neutrals SN500/600 have also come under pressure, with few completed deals this week. With stocks building in tank, sellers have been keen to mark down prices to $540/t-$550/t. Some major sellers’ offers above $575/t are seemingly being dismissed.
Suppliers of bright stock also have more than adequate stocks, and prices have therefore softened with a number of possible large export deals coming under pressure from sources other than Europe. Prices have reportedly slipped to $865/t-$900/t FOB mainland Europe.
The prices above reflect export offers and sales of Group I grades of base oil available ex mainstream suppliers located within Europe.
Local sales are going through a similar hiatus with a number of large blenders sitting on the fence, waiting. Many have confirmed that they are holding offers with current validities which could be invoked if the market rises. Others who depend on regular contracted shipments are trying to push suppliers to adjust levels downward, stating that spot offers for truck and barge deliveries are falling and that prices are moving lower.
Sellers are holding firm, at least for September, commenting that stocks have been put into tank during August. The price differential between export levels and those pertaining to domestic supplies is amended to €65/t-€80/t, reflecting downward changes to export numbers and continuing local prices regarding sales made ex tank or delivered by truck and barge.
Group II sales saw resurgence in early September, but that brief spurt appears to have petered out with only contracted or prearranged sales now. Blenders using Group II base stocks are certainly increasing, and the offtake of Group II material within Europe is growing steadily.
Buyers believe that prices in Europe should reflect changes made at Far East and U.S. sources. Seeing prices being discounted by some $60/t in respect of the light vis grades, and perhaps around $10/t-$15/t for the heavier grades, has inspired purchasers to request lower numbers.
Levels for the light vis grades from 70N though to 220N are lowered to $560/t-$585/t with the heavier range of products 500N and 600N taken down some $10/t to $760/t-$825/t. The latter high refers to Group II+ grades.
Group III has seen amendments to current selling levels – not marked changes but often convoluted and complex arrangements with retrospective discounting, TVAs applied to volume offtake, and other formula prices. Analyses of a number of buyers' purchase arrangements would lend weight to prices being marked down €10/t-€20/t k for sales during September. Levels are €850-€875/t for both 4 centiStoke and 6 cSt grades basis ex tank Antwerp-Rotterdam-Amsterdam.
Baltic and Black Sea
Baltic trade in respect of Russian and Belarussian base oils has started to realign with mainland Europe pricing after a period where Baltic numbers, particularly for the heavier Group I neutrals, were being offered at high levels from some sellers. SN150 and SN500 are being offered on an FOB basis at $475/t-$485/t in respect of the SN150 grade, whilst SN500 has come down to $540/t-$555/t.
SN900, where availability allows, is on offer at $$670/t-$685/t on basis FOB sales, although this grade is mainly being offered on an FCA Baltic basis. The relatively high price for the SN900 is said to be due to demand, but with bright stock becoming more available and lower in price ex mainland sources, it could be reviewed.
Black Sea prices for Russian exports are almost at the same levels as the Baltic’s, with SN500 being the most favored by Turkish importers along with smaller quantities of SN150. These two main grades are offered at $520/t-$575/t basis CIF Turkish ports such as Gebze and Aliaga.
Middle East Gulf
The large STS parcels destined for Middle East Gulf and Indian receivers earlier in the year appear to have been put on the backburner due in no small part to the availability of low-priced Iranian exports. Mediterranean offers are still coming into Turkish receivers, but with only one Greek parcel identified this week and no bright stock imports reported. Levels for SN150 and SN500 ex Mediterranean are expected to compete with Russian offers, perhaps attaining a $10/t-$20/t quality premium.
With Iraqi production of base oils severely curtailed due to the Kurdish and Syrian strife and the ISIL insurrection, Iranian sources may reportedly try to sell to Iraqi blenders and traders. There has always been a trickle of Iranian material entering Iraq, but sources state that this could be a legitimate outlet for Iranian Group I material after sanctions are clearly lifted.
Other Middle East Gulf reports are akin to Europe, with demand slowing at a time when normally stocks are being put into place for peak fourth quarter production.
Sources in the United Arab Emirates said that with the outpouring of Iranian exports, the necessity to purchase large parcels of Group I neutrals from distant sources is no longer necessary. Obviously quantities of grades such as bright stock are required, and when coupled with Russian offers for supplies of SN900, the Middle East Gulf markets may be almost covered.
Regional logistics have been totally changed due to the sudden availability of Iranian exports which could be forthcoming in coming months. Offers are unbelievably low, with one unsubstantiated report of $445/t for SN500 basis FOB sale.
Quantities of bright stock have been offered to receivers in U.A.E. from Europe and U.S. at $975/t-$985/t CIF. One receiver is heard to have bought some 4,000 tons at around this level, whilst others are believed to be holding out for around $920/t delivered.
Group II trade appears to be slack, with regular receivers reporting higher than normal inventories, or perhaps just unwillingness to commit to further purchases whilst source markets are moving downward, albeit in small steps.
Offers for October deliveries are hitting desks, with both U.S. and Far East producers looking to offload considerable quantities of Group II. Discounts may be key to sales, and with Middle East Gulf buyers ready to look at lower numbers, there may be deals.
There has always been a demand for heavier vis grades in this region and some suppliers appear to have recognized this with prices for the lighter grades pitched higher than source, but also with heavier grades discounted to balance the effect.
October levels range from $570/t to $595/t for lighter vis products, along with keenly priced heavier material between $755/t and $770/t basis CIF/CFR, Middle East Gulf ports. However, one receiver in U.A.E. suggested having received an offer for 500N at around $525/t CIF.
South African buyers have been offered some heavy Russian grades termed bright stock at around $910/t delivered into Durban in flexies. This is reportedly lower in viscosity index and viscosity, but light in color and will have uses as a viscosity booster for some blends.
SN500 is also being offered into East Africa and South Africa at $625/t- $650/t, depending on quality and specification.
Nigerian receivers have confirmed another large parcel from the Baltic and northwestern Europe. This parcel of mixed Group I grades consists of SN500, SN900 and will be topped off with bright stock. Buyers said that they could not put off purchasing until later this month, since inventories would reach critical levels. Ideally they would have waited until October, when they perceive prices to be lower, but said they would also take advantage of lower prices by purchasing a further cargo then.
Other receivers and traders are examining the possibilities of cargoes out of the Mediterranean and U.S. Gulf Coast in addition to opportunities from Baltic and mainland Europe.
There appears to be healthy demand in West Africa which may help soak up some of the avails that could otherwise clog European suppliers.
Parcels bought this month and arriving into Nigeria in early October have been assessed around $625/t for SN500 with SN900 at $790/t-$820/t, but with heavy demand for this latter grade, prices could edge up depending on demand and availability. Bright stock demand remains, and with new lower FOB prices, is expected to pick up. Levels are $975/t-$998/t delivered depending on quality and quantity.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly at firstname.lastname@example.org.