Europe-MidEast-Africa Base Oil Price Report

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The EMEA base oil market has been awoken by a soft bang: whilst producers are expecting to increase price levels, nothing concrete has taken place as yet.

Crude prices have escalated to new highs, with WTI rising to almost $83 per barrel in early trading on Monday and Dated Brent showing at just under $80. There has been some retrenchment with WTI down below $82 and DB at just over $78. These crude levels are certainly affecting total barrel economics, but more important is the demand on specific petroleum products.

ICE gas oil numbers currently stand around $670 per metric ton, and are exhibiting progressive forward strength through three months, with longer term prices showing in excess of $700/t for the third quarter and beyond. Vacuum gas oil is following this lead, and with mainland Europes arctic cold weather, this grade is being diverted to meet heating oil requirements. This could lead to production of lower quantities of base oils.

These price movements are applying pressure on refiners to increase realisations on base oils given the huge demand for the alternative use of feed stocks. Estimates last week put marginal increases at some $80/t to bring base oils into line. Now figures up to $125/t are being used as a measure against which base oil prices will have to rise, assuming that numbers were broadly in line with feedstock values previously.

Although new prices have not been announced throughout the market, price levels are assessed to be between $755 and $790/t for API Group I solvent neutrals, with bright stock between $910 and $960/t, basis mainland European ports.

Russian base oil prices, particularly in the Baltic, have come under pressure from two sides. On the one hand, producers and indigenous traders have been trying in vain to move the price levels upwards to maintain differentials commensurate with envisaged European mainland production, whereas from the other side, the buying fraternity has not been responding with any real appetite to pay higher numbers than previous. With the material being railed from refinery to shore tanks in the Baltic, and with a limit on storage capability, some sellers, although in the minority, have even discounted current prices to move material on a prompt basis. These prices are still reflecting numbers such as $665 to $675/t for SN 150 and SN 500 or equivalent.

It is anticipated that this situation will not last for long, since the flexibility to sell at a lower price is fast disappearing with increases in FCA numbers – prices at the refinery gate – impinging on the exports from this region. Prices for SAE10 are around $675 to $690/t, with higher viscosity material around $680 to $710/t, all basis FOB the Baltic loading ports of Riga and Liepaja.

West African enquiries appeared have subsided, after the initial burst of activity during the first few days of January. Delivered prices going into this region are said to be around $850 to $890/t for solvent neutrals, with bright stock approaching $1,050/t. These prices will only be confirmed after fixtures of vessels and supply of cargoes has been completed, since both elements are fundamental to the final selling prices into these areas.

In the Middle East Gulf region, some suppliers have already vainly tried to increase base oil FOB prices. For example in Iran, where there appears to be enormous inventory in storage, quantities of Group I solvent neutral grades have seen prices moved upwards by some $25 to $30/t within the space of a few days, but with few buyers rallying to purchase this material. Prices have reportedly moved back up to levels between $730 and $760/t, basis FOB, for SN 150 and SN 500/650 grades, whilst imports of bright stock have been listed at the ports at levels approaching $1,145/t.

Group II/II+ material appears to have made little or no movement in prices in the EMEA region, but rumours are that both Far East and U.S. producers of these grades have initiated increases during the last few days which will inevitably move the numbers in EMEA to new levels. Prices are now expected to be in the spread of $890 to $1,075/t, depending on grade and delivery. Group II prices are in the same situation, with the source producers dictating any new pricing levels for these grades. Prices for Group III base oils are expected to rise more slowly than those for Group I and Group II.

One or two of the majors have announced that they are currently reviewing numbers both for supply contracts and spot business, and have declined to make any offers for base oils until these decisions have been taken. This has created a situation where unless suppliers receive a bid from a buyer well in excess of perceived current price levels, an offer will not be made.

This has led to frustration from some buyers who have made bids for material which they considered to be realistic, only to be told either that they cannot expect a prompt response, or that their price ideas are too low.

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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