Europe-MidEast-Africa Base Oil Price Report

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Its an exceptionally quiet week in the EMEA base oil market, due to an impasse between the prices sellers are offering for very limited quantities, and the numbers buyers consider acceptable for future supplies of base oil.

Almost taking the market by surprise, crude oil values have fallen to unexpectedly low levels over the past few days, and these levels look as if there may be further weakness to come. After a brief rally at end of last week, WTI has fallen to $72.25 per barrel on Tuesday trading, with Dated Brent butting the trend, and moving up to a level some two dollars higher at $74.25/ bbl.

The overall downward spiral has been caused by various independent occurrences, the latest being fears that Chinas economic growth may be slowing and demand for crude and products will fall. This will cause ripples across all markets, and all petroleum products and particularly base oil feed stocks will come under renewed price pressure.

Vacuum gas oil levels have dipped again in recent days, and in percentage terms have moved downwards by some 25 percent over the last month. This is a significant movement, adopted by buyers as a sign that base oil prices are set to fall.

Producers are stating that base oil prices do not move in line with other petroleum products, but take time to reflect longer-term price movements. This argument grows thinner each day that crude and feedstock levels remain lower.

Prices for API Group I base oils have therefore remained static over the last few days, and are placed in the same ranges as last week. Solvent neutrals are coming in between $870 and $890 per metric ton for the lighter grades, with heavier neutrals showing at $895 to $920/t, all basis FOB. Bright stock is still in the wide range of $1,000 to $1,050/t.

These levels are for offers which are being resisted by buyers, and are for loading during July, and sometimes even into August. Most are indexed against recognised marker prices, with few offers being fixed and firm, although this approach may soon change.

What is interesting are the levels at which buyers are countering sellers, since this may give some indication as to where prices might lie in weeks to come. Most buyers are asking for reductions of some $40 to $75/t on basic FOB prices. In some extreme cases price reductions have been mooted in the region of $100/t or more off current numbers, but these levels are being vigorously defended by sellers.

Throughout the whole EMEA region suppliers are digging in and defending their selling prices. Russian prices for ex Baltic material are talked up comparable to mainland European levels, but only for the premium quality base oils which are still rather rare as exports through normal Baltic channels. Asking prices have firmed marginally for these grades in the region of $880 to $900/t, with lesser quality base stocks coming in at $860 to $885/t, all basis FOB Baltic loading ports.

Iranian material may be the first supply point to have cracked under price pressure from buyers, since one cargo of 5,000 tons of SN 500 (second-stream material with higher color and lower viscosity index) was loading at $850/t FOB Bander Boushire. This would reflect a $10/t discount to previous price levels for this material. If this is the case, then other suppliers in that region may follow to sustain exports of Group I base oils to receivers in India, UAE and the Far East. These importers have most certainly declared a price war on current selling levels.

Saudi Arabian supplies appear unaffected to date, and have maintained to same levels as previously outlined for that supply.

The African continent appears to have posted a variety of responses to developments in base oil pricing. In East Africa, receivers and blenders are resisting further increases, and are declaring that they will not import further quantities from their regular supply sources until prices are lowered and allow them to resume competitiveness in the finished lubricant markets. Two importers of base oils have stated that it is more cost efficient to import finished products, than to import raw material in the form of base oils and additives and pay locally for the blending and packaging. This may be another way of expressing a need for lower base oil numbers being offered.

South Africa, on the other hand, is expecting a further increase in base oil prices for June. This has not been confirmed as yet, but it is anticipated that increases of some $20 to $40/t will be applied to current prices. Reported prices will be established at levels around $1,090/t for light neutrals and $1,100/t for SN 500. Bright stock will now be priced around $1,325/t; all prices are on the basis of ex tank Durban or Capetown.

West Africa would appear to have gone into retreat, with buyers in Nigeria saying they would rather wait to see what happens with prices from their normal supply points in Europe before committing to further imported cargoes. They are obviously hoping and expecting that the market will come down and that future imports will be priced at lower levels.

Group II and Group III base oils within mainland Europe have continued to increase in price. This is due – particularly for Group III – to higher production costs at source, a declining euro against the U.S. dollar, and the lure of more attractive markets in the Far East and in the U.S. where higher prices are producing more attractive returns for 4cst and 6cst grades. In Europe, buyers either pay the higher numbers or do not receive supplies. In some European areas a couple of blenders are reporting a shortage of Group III grades, or at least a limit as to the quantities they can buy, believing that these oils have been diverted elsewhere. Prices are now established between $985 and $1,125/t for the full range of products, depending ultimately on method and delivery location.

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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