Almost all producers, sellers and refiners within the EMEA region have acknowledged that base oil prices areunder pressureto rise on an imminent basis. Some however are maintaining current month pricing with a view to increasing numbers for April supplies, hinting that the intervening time will give them time to assess the required amount of increases to be applied.
Buyers are turning this situation to their advantage where they can, and are trying to book as much business for March lifting as possible. These opportunities are limited due to constraints on product availabilities and transportation means, but many receivers are trying to make the most of the time left to maximize inventory and stocks.
As forecast last week, some sellers are looking for relatively large increases, as the pressure mounts from the raw material cost angle, along with an increasing demand from deep-sea locations which are running short of base stocks, particularly API Group I material.
Figures mentioned have ranged from hikes of $25 per metric ton at one end of the spectrum, to $110/t in one producers case, where it was felt that they had been underselling through recent tenders.
Looking at this perspective from another viewpoint, producers are extremely concerned regarding retaining market share and business which they are currently serving. Hence they are being ultra conservative about raising prices within what is perceived as a rather fickle local market showing very little European domestic growth or demand.
Some producers are applying larger increases to material bound for Far East locations, reading that this is a different market, and that traditional export numbers should reflect this.
In some cases where there are prompt availabilities, producers have already increased prices for current barrels, and levels are now showing in the European range at between $760 to $850/t, basis FOB mainland Europe supply for solvent neutral grades, and around $940/t to $965/t for bright stock in cargo quantities.
The high offers for both SN 500 and bright stock from last week appear to have been diluted somewhat to arrive at selling prices within the bands above. The large pricing spread is due to varied timing of price increases from individual producers, some taking action immediately, some prevaricating.
Some buyers are mentioning concern of possible shortages for supplies of base oils over the next two or three months, when a number of European mainland refineries are entering into turnarounds.
Normally these periods can be covered from within inventory with previously produced stocks, but with many refineries running marginal quantities of base oils, there may not be the depth of supply required to carry through as normal. Buyers say they subsequently may look to increase inventories to the maximum to avoid any disruption to blending operations.
There have been few instances of base oil barrels coming through the Russian and Belarus supply chain, perhaps due to the domestic market soaking up availabilities, and the turnaround program within the Russian refinery circuit which is being touted as having a major effect on base oil production over the next few months.
There have been some small quantities available in the Baltic, and prices have moved considerably. These grades, although not primary quality, are being offered at $735 to $760/t for SAE10 and SAE30.
It must be emphasized that there are some availabilities of poorer quality I-20 material coming from one of the southern Russian producers, but this is being put up for sale on a delivered at the frontier basis in euros, so comparison to FOB prices in the Baltic is somewhat indistinct.
Iran is going into New Year holidays starting 18 March for a two-week period, hence trade is slowed even more than reported last week. No cargoes have been reported sold through the export ports in the southern Middle East Gulf, for the past three weeks, and there would appear to be no business to be transacted at least during the next fortnight.
Producers in Iran are still looking to sell base oils, but are looking for buyers to commit to inflated prices to be agreed now, with delivery of the cargoes taking place in around three to four weeks time. Needless to say, there are not many players willing to accept terms on that basis.
Other parts of the Middle East Gulf region are also relatively quiet, with UAE only now starting to recover after economic worries during the fourth quarter of last year. Iraq has still not made any real progress to re-starting base oil production on the scale previously overseen by the countrys State Oil Marketing Organization, but there are rumors that one or more plants attached to refineries may be revamped in the near future, and production of Group I base stocks may recommence.
There are even talks of production of Group III oils being considered for the future. Should this take place, imports currently flowing through Turkey and other neighboring countries (including Iran and Uzbekistan) may have to find alternative markets, which could have an interesting effect on the base oil business in the Middle East Gulf area.
Prices of base oils in South Africa have leaped over the past few weeks with SN 150 now being priced between $875 and $930/t out of tank, SN 500 at $945 to $1,025/t, and bright stock prices at $1,190 to $1,220/t same basis. These levels have prompted local blenders to investigate importing material which can compete with the local supplies, since there are also shortages in the market due to refinery outages.
West Africa has maintained the level of enquiries in Nigeria, with some new players who formerly were involved in importing other petroleum products into this area. Prices are being talked at new levels of $930 to $950/t for solvent neutral grades, and bright stock at around $1,050/t.
There are a number of these new enquiries, which could mean that this market is opening up to new players looking to become involved in blending operations within Nigeria, for added value exports of finished lubricants to surrounding territories.
Group II/II+ prices have started to climb, along with Group III domestic and imported material. The effects of further increases is now evident within the European market, with prices moving up by some $25 to $40/t over levels reported last week.
Fundamentals are around the same levels as one week ago, with West Texas Intermediate crude oil hovering around the $80 per barrel axis with the nearest support and resistance levels about $2 on either side of this mark during the week. Dated Brent has followed the trend of WTI but at a level about $2 below, showing currently at $79.95/bbl.
This continuous relative strength in crude values has helped maintain vacuum gas oil levels, with low-sulphur VGO still gaining support at over $600 in trading, with the LSVGO crack venturing as high as $9.50 at the end of last week due to demand across the western markets.
These feedstock levels mean continuous pressure on base oils to move upwards, and perhaps to rise quickly to contribute acceptable realization and netback values.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in East Grinstead, U.K. Contact him directly at pumacrown@email.com.