Europe-MidEast-Africa Base Oil Price Report

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The EMEA base oil market is bullish, with producers and sellers all trying to optimise their pricing opportunities with whatever little material they have available for spot sales. Contracted buyers are facing increases from 1 April from almost all suppliers, with just a couple of Mediterranean operators waiting until mid April before applying increases to existing business.

Suddenly, there is no spare material around in the market, and all sizeable quantities have been bought out for the remainder of this month and most of next. Most producers have allocated for April, and will not have large quantities available until May. Those future cargoes are not being sold now unless indexed against one of the accepted industry markers, with some sellers unwilling to discuss selling levels until nearer the loading dates.

Mainland European prices have risen and are now between $795 and $855 per metric ton, basis FOB for API Group I solvent neutral grades, for any export cargo quantities. Bright stock is moving upwards around $965/t. These levels are now being reported, but could have been negotiated some weeks back.

Without any real new business taking place, the market has become somewhat blurred. For instance, one loading reported to take place next week for SN500 from a northwest European seller will be priced at $770/t FOB, but were this small quantity to be priced now for April or May loading, then a substantial premium of perhaps some $30 to $40/t would be applied.

The Mediterranean and North Africa are extremely limited as to availability of base stocks, and with further export tenders delayed, refiners may be looking to place their production closer to home in domestic markets where they can expect better returns.

Russian supplies have all but disappeared from the market, and Baltic traders are indicating that it may be some time before they will be able to offer larger parcels of base oil for export to locations such as West Africa and India. Some material is still finding its way from the Baltic to northwest European storage terminals, but these cargo lots are now for the semi-contracted sales for break-bulk operations within northwest Europe. Prices have risen for these supplies with FOB numbers reflecting the shortage of material available in the market. Levels are put at $755 to $795/t for mid-quality SN150 and SN500 or equivalents.

There is still some Belarus material flowing from Naftan at Novopolotsk refinery, but these smaller quantities are being diverted into the local and Russian markets which appear to be short of base oils.

In the Black Sea there have been no reported cargoes available from southern Russian refineries, since most of the material has been diverted north where better realisation can be found.

The Middle East Gulf area has been quiet, and given the New Year holiday season in Iran with another week to run, things will continue in this mode until at least the end of March. With many producers offices closed in Iran, there are no reports of any cargo movements.

Far Eastern Group II and Group III material coming into the Middle East Gulf region have shown substantial rises in delivered levels during the past week. Prices are estimated to have risen, and notionally numbers for heavy neutrals, SN500 and SN600, will eventually reflect the new Far East and European levels, since it is estimated that prices will be around $810 to $825/t when the market reopens in some ten days.

Saudi Arabian prices from Yanbu and Jeddah refineries have been posted to rise again by some $10 to $15/t for solvent neutral grades, and bright stock from these locations is now being offered around $1,000/t.

Some quantities of rerefined oils have been offered from a Yemeni source, showing reasonable quality standards and aggressive pricing. With more importance placed on the recycling of used lubricants, this unit may hold a few geographical trump cards for supplies into East and South Africa and the Indian subcontinent. Prices are set just below European Group I levels, but bulk supplies are limited, and the majority of sales are being transacted using flexibags in containers.

Shipping from this region continues to be difficult due to the Somalian pirate situation, hence distribution is not helped by the substantial premiums applied to any vessel operating within this area.

The South African market has seen many enquiries coming through to European sellers, but with limited avails in the European mainland, responses have been somewhat muted. Far Eastern traders have tried to offer base oils into this region, but with the price increases applied to production from that area, along with turnarounds and other refinery outages, offers have been limited and highly priced. Group I demand is currently high in this region, and some players have elected to try moving material from some unlikely sources in the Middle East Gulf and European mainland areas.

Prices are still moving in South Africa, and levels for Group I grades are showing at $890 to $950/t for SN150, $990 to $1,050/t for heavier neutrals SN500/600, and $1,200 to $1,235/t for bright stock, all basis ex-tank Durban.

West Africa has had one cargo reported into Apapa, Lagos, delivered at around $885 for heavy neutral SN600/650 and $1,065/t for bright stock basis CFR.

European Group II and Group III prices have now fully integrated with supply source economics, and have risen by some $40 to $65/t across the board. The differentials between Group I and Group II and III material have been reestablished, and are now back to the deltas seen in the middle of 2009. Further increases may still be in the pipeline, given the reports from production sources in Far East and U.S. for all base oils including Group II and Group III grades.

All fundamentals appear to be stable this week with crude oil around $81 to $82 per barrel for WTI, and European marker Dated Brent remaining in a tight band at $79 to $80/bbl during the last seven days. Feedstock values continue to show strength, and low sulphur vacuum gas oil is once again trading over the $600/t hurdle. More importantly the VGO crack is remaining high, around $8.40, which may show that demand is running high for this feed, and there will be competition within the markets for best placing this material for realisation and returns.

Its a firm to stable market, but with dwindling European availabilities of Group I material due to demand from deep-sea locations. At the same time, reduced refinery production of material in Europe reflects a forecast downturn in regional demand for 2010. This in turn is producing a stimulus effect which could not have been foreseen. Perhaps it is time to increase production again and turn on the taps to release more base oils into a truly global market, rather than concentrate on regional demand levels which can only take account of domestic base oil use.

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.

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