Limited availabilities of almost all grades characterized the EMEA base oil market this week. Buyers are finding difficulty laying hands on prompt material, particularly at prices they deem acceptable.
Any prompt barrels available are being offered by producers at premiums over the prices published in the market. With the market moving at top speed, it has been difficult for buyers to respond fast enough for the prices offered to hold validity. Prices are changing daily, and any delay in accepting an offer results in the prices being withdrawn, with subsequent offers at higher levels.
API Group I base stock numbers have moved during the last few days by some $10 to $30 per metric ton over last weeks price levels, and are still moving. With the current momentum it is very difficult to quote exact levels for base oils. If buyers can find the right material in the right location they will be paying $800 to $830/t for SN100/150, between $820 and $855/t for SN 500/600, and $955 to $1,000/t for bright stock; all basis FOB European mainland and North Africa.
These levels are still providing the arbitrage for material to flow to Far East destinations where there is a huge shortage of Group I material. Rumours in the market this week have suggested that at least three refiners in Europe are looking to increase production of Group I base oils to take advantage of this demand.
Russian barrels are missing from the supply chain at the moment due to many turnarounds commencing in this region, and also the diverting of some material to Eastern markets directly from Russian refineries, to be sold basis DAF Mongolian border into China.
The Russian domestic market appears to be buoyant; hence export quantities are not available through Baltic and Black Sea traders, at least not in quantities as seen previously. There was one small cargo on offer from Liepaja this week, with the heavier grade offered at $790/t and the lighter material, SAE10, offered at the slightly lower level of $780/t.
The Middle East Gulf area has thrown up some anomalies once again, with reports of 3,000 tons of unclassified Iranian base oil sold at $770/t, whilst another cargo of 5,000 tons of SN500 has been seen at $800/t, basis FOB Bander Bushire port. On investigation, it appears that the low level of $770/t was somewhat historical and applied to a sub-spec light neutral cargo, on a one-off basis. Prices in the region for Iranian Group I heavy neutrals are now in the range of $810 to $853/t, basis FOB.
Saudi Arabian base oil prices have increased again this week, with one buyer reporting that neutrals moved by $25/t whilst bright stock increased by some $40/t. These new levels have not been substantiated, but would be logical.
Traders are seeing a flood of enquiries from West Africa, Nigeria in particular. They are largely unable to respond positively due to supply problems from Europe and from the U.S., where most heavy neutrals and bright stock have completely vanished from the supply scene. Some buyers are looking to buy two to three months forward, but with sellers unable or unwilling to price on a futures basis, it has become increasingly vague as to how these supplies are being allocated on a contractual basis.
Some players are trying to put forward formulas based on ICE gas oil futures, throwing in a mix of vacuum gas oil and fuel oil pricing as well. At the moment these solutions appear to be clutching at straws. Whilst these are genuine attempts to forward-price base oils, something a little more sophisticated is required to be adopted by the whole industry, if this is to be the way forward. Of course, should the market turn around with base oils becoming widely available again, such forward planning would be abandoned, and short-term spot trading would become the norm once again.
Turning to the Group II/II+ and Group III prices in EMEA, there have been substantial increases to imported material coming into the Middle East Gulf from Far East. With growing requirements for all these grades, sellers have adopted relatively strong pricing ideas, moving their delivered numbers for Group II/II+ upwards by some $50 to $60/t. A similar picture is being recorded in the European mainland where U.S. and Far Eastern imported products are now moving upwards on price reflecting the increases which were applied by source producers in those regions.
Prices for Group II oils in the Euro zone have now moved to $885 to $1,020/t, the lower end pertaining to the lighter vis grades and the upper end of the chart for the heavier vis material. These will continue to move since further increases have already been announced, and mostly will be in place from the beginning of May. Group III again falls into a wide spread of prices, which in some case can be around $960/t, but can extend to levels approaching $1,300/t, depending on delivery and location.
Looking at the fundamentals surrounding the base oil scene, crude moved strongly through last week to record new highs, with WTI over $87 per barrel and Dated Brent, the European marker, following at highs of $85.45/bbl. There will be resistance to further moves at around $88 for both crudes, but breaching that level could yield levels as high as $94/bbl. There are many schools of thought surrounding these latest movements, but with levels falling back to $83.10 for WTI, and DB reversing the trend to stay at a higher level, $84.25, there is still room for base oil prices to increase, reflecting crude levels as they are today.
Feedstock levels remain high, and have only marginally fallen relative to crude levels. Low sulphur vacuum gas oil has fallen due to decreased demand for gas oil and the gasoline pool, but still trades at levels which will keep pressure on refiners to increase base oil prices again and again.
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.