Group II base oils deep-sea cargoes temporarily ease UAE supply shortages

SINGAPORE (ICIS)–The impending arrival of some deep-sea cargoes of Group II base oils in the United Arab Emirates (UAE) in February could provide some relief from ongoing supply shortages in the spot market but this could only be temporary, market sources said.

The supply of Group II base oils in the UAE has been extremely tight over the last few months as some of the main suppliers to the region allocate more volume to meeting contractual obligations, leaving little for the spot market.

Also in 2017, in the wake of devastating hurricanes in the US, demand from North America spiked, soaking up even more spot supply from the Middle East markets.

Since late 2017, while much of that increased US demand has tapered off, spot availability of Group II to Middle East buyers has not seen any significant improvement.

“The supply of light grade is very tight overall, I think this situation will last for at least a few more months,” said one Asian market source.

In the early weeks of 2018, the UAE market started to buy up spot cargoes of Group I and II base oils originating from either the US or Europe in an attempt to supplement the limited volume available from Asia.

“Many (such) cargoes heard coming to the UAE,” said one source.

Middle East sources said these cargoes were at similar prices compared with similar grade material, previously being offered by NE (northeast) Asian producers.

Deals for these deep-sea origin light grade Group II base oils were heard to have been transacted at around $800-810/tonne CFR (cost & freight) UAE.

“They are mostly of lighter grade material, which has been in severe shortage,” said another market source.

There were no firm offers for Group II 150N from NE Asia over the last few weeks but workable selling indications were deemed to be also around $800/tonne CFR UAE, in current market conditions.

Also as comparison, ICIS data showed prices of northeast (NE) Asian-origin Group II 150N were at $690-700/tonne FOB (free on board) NE Asia in the week ended 26 January.

The supply of heavier grade Group II base oils in the UAE was longer and buyers were still able to secure some Asian-origin material, eroding some of the interest for similar-grade deep-sea cargoes

“Supply-demand of 500N is quite balanced right now, so I think sellers can’t really offer that much of a premium at the moment,” said a market source in Asia.

Heavier grade 500N prices in Asia were at $790-820/tonne FOB NE Asia in the week ended 26 January, while deep-sea cargoes were believed to have been sold at around $900-910/tonne CFR UAE.

According to various market sources, these Group II cargoes had been loaded onto vessels in January and are due to arrive in the UAE in February.

Going forward however, the market is expected to continue to be tight on the supply front as many market participants do not expect these deep-sea spot cargoes to be available in abundance over the next few months.

“From the amount of spot available that we know of, we think there might not be very much more of these cargoes that could be offered to the Middle East going forward,” said a market source.

There has been some hope that Luberef Group II cargoes could alleviate some of these supply shortages but market sources said there have been no indication that Luberef’s Group II base oils are currently commercially available.

Luberef was due to have started sales of Group II base oils from its 550,000 tonne/year facility in Saudi Arabia by January 2018. The company could not be reached for comment.

Top image: Vietnam port

Focus article by Izham Ahmad