Europe-MidEast-Africa Base Oil Price Report

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Its a particularly difficult week to assemble prices for base oils in the EMEA regions. The market has all but come to a halt, in the sense that producers have very little oil for May sales or loading, and looking forward into June, many outlets have already fully committed their production.

Any offers from producers for June and indeed for July barrels have been substantially higher than prices quoted last week, and it would appear that sellers are being given license to offer at higher numbers for future sales, knowing that buyers may be forced to queue up to purchase any spot avails. A few spot buyers/traders are trying to secure short term contracts with producers, at least to lock in a basic supply of material for the next few months.

Perhaps as a result of lack of material being offered, many buyers are stating that they do not want to pay higher prices, and that any further proposed increases will be strongly opposed. The receivers are of the opinion that all fundamentals have been factored into current prices, such as crude and feedstock movements, currency exchange variations, freight and banking costs, such that no further rises in price level can be justified at this time.

Prices in the European market for API Group I material, based on offers for material in the future, could always be subject to change should improved quantities of base stocks become available for negotiation. Light vis solvent neutrals are established between $845 and $875 per metric ton. The heavier ends including SN 500/600 are showing in the spread of $875 to $900/t. Bright stock was offered in one case at $1,040/t, establishing a range of $1,020 to $1,050/t for this product. All these prices are on the basis of FOB sales, ex mainland European and North African ports.

These positive vibes for base oils are being heard in spite of crude and petroleum product weaknesses which should ultimately have an effect on base oil economics. Producers are saying that refining margins for base oils are not satisfactory, and that increases are justified on the basis of poor netbacks and unacceptable realisations. At the same time, the demand factor has increased considerably due to turnarounds and lower production levels depressing the quantities of base oils available. Whilst at the same time real demand has taken off, with requirements for finished lubes and hence base oils increasing on a global basis.

Crude oil has come off the mid-$80s spreads which appeared over the last few weeks and has sunk to levels not seen since January or February of this year. U.S. crude demand has fallen to yield levels currently just above $76 per barrel, whilst Dated Brent is showing relative strength at around $3 higher, marginally breaking through the $80 per bbl mark. The uncertainty within the European economic scene has had the effect of depressing crude levels, but with chinks of light starting to appear on the horizon, these trends are forecast to be reversed, and crude may once again go through the $80 hurdle.

Feed stocks have been in demand, not just for base oil production, with the low sulphur vacuum gas oil crack being the highest for some time, at one stage late last week reaching $15.35 per bbl. The pressure being exerted by feedstock values on base oils is far outstripping the notional effect of falls in crude pricing, but this factor tends to be overlooked in the realities of the lubricants market.

In the Middle East Gulf region prices have risen again for material exported from Iran, with reports stating that three cargo lots had been exported this week. One part of 2,500 tons of SN 500 commanded a price of $890/t basis FOB BIK, whilst a similar quantity of SN 650 was sold at $870/t, perhaps being of lower quality. Another anomalous sale of some 2,000 tons of bright stock was exported at $1,050/t FOB BIK. The bright stock export would appear to go against the flow both from a pricing stance and also from continuing import requirements for this grade. The assumption is that this material is lower quality, but this cannot be corroborated.

Saudi Arabian producers were heard to have posted increases of $25 to $40/t to their Group I grades, applied to contracted buyers.

West Africa has been in replenishment mode with cargoes arriving into Cote dIvoire and Senegal from European affiliate producers, and Ghana receiving material under the tender supply. Nigeria has had two cargoes arrive, and news is awaited of discharge and the further arrival of a third import. Prices have moved up significantly since the last major round of imports, and bearing in mind that the purchase and arrangements for these cargoes were made some six to eight weeks ago, prices are now moving up in line with mainland Europe supplies.

Solvent neutrals are now being imported into West Africa at $890 to $945/t, whilst bright stock approaches $1,065/t for one parcel. Some of the Baltic grades have been imported at slightly lower price levels, reflecting the lower FOB numbers at the time.

Russian and Belarus material continues to appear in very much smaller quantities than previously, with some 2,300 tons of mixed SAE 10 and SAE 30 being offered this week at levels discounted from European numbers. These were reported at $860/t for the SAE 10, with the SAE 30 at $885/t. The quality of these grades is comparable to main European production, so discounting is not so prolific. These prices are basis FOB, and are calculated from euro FCA prices plus transportation costs to CPT basis.

Most spot Russian production which is available for export is finding its way to the Far East by the rail system. It is emphasised that these are spot availabilities, since Russian domestic demand has apparently surged over the last few weeks and has prompted a number of refineries to revise production schedules upwards after completion of turnarounds. Higher demand has resulted in higher rouble prices being paid by local blenders. Where the opportunistic supply of Group I material to China may have been attractive some weeks ago, this outlet may be unwilling to pay higher prices, since there may be a number of supply options for these buyers.

EMEA imported Group II/II+ price levels have emerged higher over the last week, with May deliveries of these grades echoing the price increases applied at source. The increases are being applied throughout the region. For example, in the Middle East Gulf area increases of some $55 to $80/t have been applied to light vis grades, bringing these levels to around $955 to $985 CFR Middle East Gulf locations, with heavier vis grades arriving into the area at levels upwards of $1,040/t, same basis.

In the European mainland a slightly different picture is seen, with prices moving up around $50 to $70/t above Group I levels. The difference between the two areas appears to be that in mainland Europe there is generally a large availability of Group I material (albeit sold short at the moment), whereas the Middle East Gulf area is largely dependent on imports from Far East, where there appears to be an abundance of Group II and Group III base stocks, but a distinct shortage of Group I material. This may all change when production of Group III is opened up in the Middle East Gulf, and when Group II production commences in Saudi Arabia.

Group III sellers in Europe are trying hard to increase price levels against increasing competition from Group II/II+ grades, but euro-U.S. dollar exchange rates are playing a major part in the value of sales. Six cSt Group III material is now being sold at $1,260 to $1,300/t basis delivered main locations, with the lighter vis material priced anywhere between $1,085 and $1,190/t, on the same delivered basis.

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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