Europe-MidEast-Africa Base Oil Price Report

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It is a most confusing time in the EMEA base oil market, with product shortages all around for API Group I material, and very few signs, at least within mainland Europe, that prices might be adjusted downwards.

Elsewhere, in locations such as in Iran and Saudi Arabia, there have been the first signs that price levels may come off the recent highs, with negative adjustments being made to FOB prices by up to $70 per metric ton in some cases.

The fundamentals are still very much in evidence, with crude levels still circling $72 per barrel for both WTI and Dated Brent, both markers showing marginal stability around this level. This has focused the minds of buyers of all petroleum products, most of whom have seen responsive price falls in the various materials, some of which are used as feedstocks for base oils. Base oil buyers have latched on to these decreases in real values to crude and feedstocks, and are now adamant that base oils must follow the trend, no matter how short that trend may be.

Buyers are saying that crude has come off the highs, and has been stable for some two to three weeks now, and that with feedstock levels following suit, base oils prices should now be reflecting these movements.

European producers have remained resolute in maintaining selling levels at previous numbers. Importantly, mention must be made to other global base oil markets, since these are having a profound effect on the European Group I scene.

Three very different regional markets appear to be evolving. The Americas are showing shortages of all materials, with the added element of prices firming. The Far East, where local supply of Group I material has caused prices to remain static, as buyers in this region are presently not rushing to buy Group I grades from Europe. Finally the European scene, where availabilities for base oils still remain tight, and prices are being maintained for Group I production, at the levels set over the last few weeks.

Prices within European mainland have not moved, and levels reported last week are still being offered for any material which is available for prompt, and even forward sales. Levels for Group I base oils are therefore gauged at between $870 to $890/t for light solvent neutral grades, with heavier neutrals such as SN 500 and SN 600 showing at between $895 to $920/t, all basis FOB mainland European ports. Bright stock is still in the range of between $1,020 and $1,050/t.

It must be added that it is increasingly difficult to lay hands on large cargo sized parcels of Group I material sourced from the European production centers, with most cargoes being pre-booked sometime ago at the levels being offered today for oil which may not be available until July and perhaps even into August.

The anomalies, as mentioned above, have been in the Middle East Gulf region where suppliers have come under so much pressure, and perhaps with inventories building, that they have seen fit to take prices off the high levels, and to discount Group I numbers for prompt loading.

In Iran reports are that 5,000 tons of SN 500 was sold out of Bandar Imam Kohmeini at $850/t, and that a further cargo of 5,000 tons of SN 650 loading from the same port was sold at a lower figure of $830/t. The respective qualities are not confirmed, hence true relative value is difficult to assess. In comparison terms, this would approximate to discounts of some $50 to $70/t being applied to the sales of these grades compared with past prices quoted.

There were other quoted instances of a cargo of SAE40 material being sold at $1,040/t, but this cargo may not be virgin base oil, but may refer to a finished lubricant, hence the higher price level than expected for a Group I type base oil. Some 3,000 tons of bright stock was also loading from Bandar Imam Khomeini at the same level of $1,050/t.

Two smaller lots of 200 tons of SN 500 and SN 650 were loaded out of Abadan, at levels of $845 and $825 respectively. It would appear that these new price levels were implemented to give a boost to Iranian base oil sales which for one reason or another had been languishing somewhat in recent weeks, due to restrictive Western banking, and the local markets being saturated with high priced material.

Saudi Arabian prices have been adjusted perhaps to meet the competition from Iran, but more likely as a result of declining sales within the region, due to buyers hanging back, waiting until prices came off the highs.

In West Africa there have been a flood of enquiries from importers into Nigeria, perhaps these buyers sensing that the market is about to come into line with crude and other products. With negotiations taking up to one month to complete, these receivers will realistically be looking to purchase for August arrival into Apapa.

Prices coming out from these enquiries suggest that buyers in the region are looking for substantial discounts to current price levels are looking for solvent neutrals to be landed at around $900 and that bright stock imports should now be around $1,000/t. These levels are unachievable with current supply economics and lack of availabilities, but at least show an expectation that prices will come off present levels for the next tranche of arrivals of base oils into the country.

Current offers are being made in the region of $965 to $985/t for solvent neutrals, and around $1,130/t for bright stock, basis CFR delivery. These levels show just how far apart sellers’ and buyers’ ideas are on pricing.

Prices for Group II and Group III base oils continue to rise in line with producers expectations from other markets, where increases of some $10 to $15/t have been applied from June 1 for imported European ex-tank sales of Group II material. Group III receivers have been under great pressure to accept large increases due again to the falling exchange rate between the euro and dollar, and also the lure of the U.S. market to producers, where prices are some $100 to $140/t higher than selling prices in Europe for the same material.

The 4cst and 6cst grades are expected to rise further in price during July, reflecting the increased production costs and the exchange rate curse which seems to loom large over European sales of this material.

The EMEA market may showing signs of following the Middle East Gulf marketplace in some instances, but is also showing a resistance to overall downward movements for prices in most parts of the market.

It is also no longer a market with clear defined price lines, but one where lack of supply and increasing demand are playing perhaps the fundamental role in base oil pricing, rather than a simplistic model where raw material and production costs are the drivers behind selling prices.

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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