Europe-MidEast-Africa Base Oil Price Report

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The EMEA market has been quiet, but nevertheless still active over the past seven days. The quiet aspect has resulted from the Easter holiday period, and the active part has been the noticeable inclination to higher prices over the week.

Following increases announced in the United States and Far East, the European non-posted price market for API Group I material has responded with producers and refiners issuing notices of increases to local domestic buyers. At the same time, export cargoes of base oils are now being negotiated at considerably higher numbers than last week.

The influence of crude and product prices has eventually started to have an effect in the European arena, with prices for Group I solvent neutrals now being talked at levels some $40 to $75 per metric ton higher than before. The situation varies depending on supplier and location within the region, but generally most have initiated price rises to compensate for higher raw material costs and the strong demand which has gripped the market over the last couple of weeks.

The arbitrage for Group I material to the Far East (U.S. is also being considered) continues and indeed gets stronger day by day. The increasing requirements for Group I material in this region have been signaled as the lifeline for European and Middle East Gulf production, at least in the short term, and is providing a home for some 30 to 55 kilotons of exports from these two regions.

Bright stock demand has risen this week with a number of large enquiries for this grade. This could also be due to turnarounds and outages in Far East, with bright stock proving difficult acquire in large parcels. Prices from the European mainland, when purchased in combination with other solvent neutral grades, are now established between $955 to $975/t, basis FOB.

An anomalous situation is occurring in the Far East, which is having a direct effect on European and Middle East Gulf supplies. Group II material being produced in the Far East has undertaken Group I, with some buyers opting to take the more freely available Group II oils at lower prices than the scarce Group I base stocks. This has dampened Group I demand from some blenders who can be flexible enough to change from Group I to Group II, but the demand is still strong for basic heavy solvent neutral grades and bright stock to be supplied from EMEA regions.

With crude oil extending gains during the last few days to reach levels of $86.85 per barrel for West Texas Intermediate and Dated Brent following about $1 less at $85.70, indications are that producers will most certainly try to pass along these crude increases, with feedstocks being re-valued for production of April barrels.

Low sulfur vacuum gas oil was trading at new highs on Tuesday, reinforcing the urge to move base oil prices to new levels. The VGO crack was maintained on highs yet again, although with heightening crude numbers the crack was not as extended as may have been otherwise. It is not only the effect of rising crude values which is driving feedstock levels higher, but also true demand from both sides of the Atlantic for these multi end-use products, sources indicate.

Iranian Middle East Gulf base oils have re-emerged after the New Year holidays, with one cargo lot of 3,000 metric tons being reported exported at $770/t, basis FOB Bander Bushire. This would appear to be a very low level of pricing for this oil, but without known specification and actual shipping dates, this report may either be somewhat historical, or pertain to lower-spec material being cleared from the system.

Current prices are established at between $810/t and $830/t, basis FOB Iran ports, for SN 500 and SN 600, but there are talks of further increases along the lines of last weeks reports that these levels will soon breach the $850 to $860/t level.

Russian supplies have been selectively re-introduced to the April supply scene, but with revamped prices which may make these oils immediately unattractive as export barrels. Some traders at the Baltic end of the supply chain are asking for prices which are commensurate with Northwest European and Mediterranean FOB supplies.

When compared on quality and with additional freight costs, these numbers may not be immediately attainable, but with the Russian pricing process fixed for the coming month and numbers established for the next three or four weeks, mainland prices may keep on rising and the Russian supplies could realign with the normal differentials. Prices for Russian and Belorus exports are being seen in the spread of $795 to $825/t for SAE10 and SAE30, but perhaps these prices are not altogether out of line for end-April loading.

In the Black Sea area, light solvent neutral, lower-spec material has been rumored to be available out of Reni in Ukraine; at prices of $755 to $775/t FOB, these are being soaked up by the local Turkish market in small lots, due to the restricted draft facilities at Reni port.

South Africa prices have maintained their rises reported last week, but have not moved much higher to date. These numbers were revealed at the end of March, and it will take time for these increases to take effect, since this market appears to price-move in leaps and bounds, rather than gentle curves. Hence there could be some stability for the next few weeks. Prices are approximately as published before, in the range of $950 to $985/t for SN 150, $1,025 to $1,050/t for SN 500 and SN 600, and bright stock coming in at $1,260/t, all ex-tank main South African ports.

Nigeria and the rest of West Africa have been exceptionally quiet over the last few days, perhaps with many of the players on holiday and out of station. Accordingly, no new prices have been recorded for this region.

Group II/II+ and Group III base oils, or at least the receivers of these grades, are bracing themselves for price increases which must echo remote production pricing moves which have been reported over the last few days. With a major in Singapore increasing Group II grades by up to $50/t and a similar noise being heard from the U.S producers, it may only be a matter of time before the European mainland imports start to climb from current levels.

Some players point to simple economics and state that with FOB numbers rising by some $30 to $50/t for all these grades, and with freight costs firming on the import routes, prices for these base oils will possibly advance over the next two months. That would take levels back to those of some three years ago.

Prices for Group II grades in Europe are established now at between $885 and $1,085/t, dependent upon viscosity, and delivery location. These levels could effectively start to increase by some $20 to $30/t per week over the next few weeks, reflecting the arrival dates of cargoes already on the high seas and those about to commence loading. Group III grades are in similar shape, and notices of increases from April 1 have already been implemented. The continuing weakening of the Euro also will not help in the matter of pricing for these grades.

The markets are concerned about rising oil costs, which ultimately could affect global economic recovery, but there is little choice for a producer of base oils when acceptable netbacks have to be established for each and every grade being supplied from every location.

What has changed is that demand has reappeared, particularly for Group I base oils, and this surge may provide the impetus for the base oil market to re-awaken. Given that base oils as an indicator are seen at the lower end of the spectrum when measuring economic activity, when this product group becomes buoyant, then the assumptions are that the other parts of the market will already have arrived.

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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