Iran base oils could face downward pressure through Ramadan

SINGAPORE (ICIS)–Iranian Group I base oil prices are under pressure during the Muslim fasting month of Ramadan with further weakness expected as demand dries up and supply remains sufficient, market sources said.

In the first full week of Ramadan, which started on 17 May in most countries, Group I SN500 base oils prices were broadly softer due to declines in the prices of Iran-origin material.

Prices of SN500 fell for the second straight week to $770-795/tonne FOB (free on board) Iran in the week ended 24 May.

Offers for Iran-origin SN500 were mentioned at $770/tonne FOB Iran, down by $5/tonne from the low end of the previous week’s range.

Putting these prices into perspective, the current range compared with the highest offers of around $820/tonne FOB Iran in March this year. At that point, SN500 prices were at their highest levels since ICIS began tracking the data in late-2015.

In the United Arab Emirates (UAE) this week, offers from other Iranian refiners for bulk SN500 cargoes were also mentioned at $785/tonne CFR (cost & freight) UAE but buyers showed muted response to the offers as they were able to procure competitively priced locally available material.

“Why should I go for bulk cargoes at the moment?” commented another Middle East source.

SN500 prices in the UAE were hence reduced by $10/tonne to $785-810/tonne CFR UAE amid the weak demand.

Prices on an ex-tank basis were also reduced by $10/tonne to $800-820/tonne ex-tank Sharjah in line with CFR UAE levels in the absence of any prices quoted in the ex-tank market this week.

But prices of Group I SN150 were maintained amid a lack of discussions after they had already declined by $5/tonne in the previous week.

There was limited information about any new offers or discussions in SN150. There were also no offers from any of the main Iranian SN150 refiners in the week.

With Ramadan already having passed the first week, many market sources expect demand to remain slow and that could put additional pressure on Iran’s Group I prices.

“Market is down. More declines [are] expected,” said a Middle East source.

Ramadan is a typically slow season for the Middle East as it is considered the holiest month in the Muslim calendar, during which, practising Muslims abstain from food and water between sunrise and sunset.

Certain manufacturing activities also are reduced as factories observe shorter operating hours and as many workers take some vacation time as well. The Eid ul-Fitr long holidays would then follow the end of Ramadan in mid-June.

“Downstream demand in the Middle East continues to be sluggish amid the observance of the Muslim fasting month of Ramadan, which started in mid-May,” said ICIS Head of Middle East Markets Muhamad Fadhil.

Base oils supply from Iran is expected to be stable with no known maintenance plans due over the next few months and that could add further pressure on prices amid the weak demand outlook.

Another factor behind the limited active discussions over Group I base oils from Iran was uncertainty over the impact of the US pulling out of the 2015 Iran nuclear deal, which saw the lifting of some sanctions.

US President Donald Trump on 8 May announced a decision to withdraw from the Iran nuclear deal and re-impose sanctions on the Middle Eastern country.

Iran is OPEC’s third-largest producer and its output currently stands at about 3.8m barrels per day, making up around 4% of global oil supply. Iran is also the main Group I base oils supplier to the Middle East region.

Iran’s biggest base oils producer is Tehran-based Sepahan Oil Company, which has the capacity to produce a total of 420,000 tonnes/year of Group I base oils.

Market players are assessing conditions before deciding on their next moves regarding any business dealings with the Iranian entities.

“Everyone’s taking a backseat to the market right now,” another Middle East source commented recently.

(Top image: Car lubricants shop: Photographer: Manfred Bail / imageBROKER/REX/Shutterstock)

Focus article by Izham Ahmad