OUTLOOK ’14: Mideast base oil prices to see uptrend in H1 2014

By Veena Pathare

SINGAPORE (ICIS)–Spot Group I base oil prices in the Middle East markets are likely to see an uptrend in the first half of 2014, supported by improved demand for spot cargoes, market sources said.

Spot Group I SN500 base oil prices on a CFR (cost & freight) UAE (United Arab Emirates) basis were assessed at $920-935/tonne (€672-683/tonne) CFR UAE in the week ended 19 December, down by $10/tonne at the low end of the range from the previous week, tracking deals and discussions for Iranian cargoes.

Spot Group I SN150 prices were assessed at $910-920/tonne CFR UAE in the same period, stable from the previous week, according to ICIS data.

According to market participants, demand in the Middle East that was seasonally weak towards the end of the last quarter of 2013 is expected to strengthen by first half of January, with renewed interest for spot lots.

Group I base oil demand is also likely to remain upbeat for the first half of the year, buoyed by an expected seasonal improvement in buying of spot lots.

SN150 prices are likely to see a sharper rise than the heavier counterpart, SN500, on the back of limited availability.

Refineries across Asia and Europe are looking to push the production of fuels, which is expected to limit SN150 production.

In the second half of the year, developments on the Iran sanction front could play a crucial role in driving prices upwards, a key importer in the region said.

“If sanctions on Iran are lifted by late 2014, which seems a lot likely going by the developments that have happened this year, Iranian [base oil] producers are likely to hike their prices, since they would have more markets to supply to,” said an importer trading in Group I base oils.

Iran, a major supplier of Group I base oils, is currently active mostly in Middle East and parts of Asia due to the sanctions.

A continued firmness in feedstock vacuum gas oil (VGO) prices through 2014 is also likely support firmer base oil prices.

“Low sulphur VGO prices, presently around $780/tonne FOB Rotterdam [in December 2013], are forecast to remain at current levels for the next few months. A premium of at least $125-150/tonne over gas oil prices also means that we are not likely to see a further drop in prices from the present level,” a base oil importer to the Middle East said.

An uptrend in Middle Eastern base oil prices is also expected to narrow the currently wide gap between prices in the region and European export prices, which is likely to improve buying interest for European cargoes.

ICIS assessed SN500 ex-tank prices in the Sharjah market at $950-980/tonne in the week ended 19 December, unchanged from the previous week and tracking offers and discussions of Iranian cargoes.

SN150 prices were assessed at $940-970/tonne ex-tank Sharjah in the same period, according to ICIS data.

While European export prices have been largely falling week on week through December, the arbitrage for European cargoes to the Middle East has remained closed for much of the fourth quarter of 2013, as a a result of lower-priced Iranian cargoes.

This capped buying interest for European cargoes, amid largely subdued demand towards the end of the year.

($1 = €0.73)