Europe-MidEast-Africa Base Oil Price Report

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This week has been a time of reckoning for buyers, who are realising that perhaps the base oil market is not going to capitulate and prices will not fall, even given that crude and some petroleum product prices have retreated from recent highs.

Sellers have, in the main, stuck to their guns and remained resolute and committed to keeping base stock prices at the same levels over the past few weeks, sometimes grabbing an extra $10 to $30 per metric ton where they have been able to justify the increases in terms of extremely tight availability.

Price increases have been making small but steady progress during this last week, and with July 1 approaching fast, many producers are signalling that they intend to increase numbers for local European and North African business, some of which is contracted, and some of which is continuously delivered on a spot basis. This will have an immediate knock-on effect to all other prices for base oils, which are expected to rise by some $20 to $50/t, according to sources within the producers camp.

Prices for FOB sales for API Group I solvent neutrals are now in the range of $900 to $940/t, for light vis grades. Heavier ends are coming in some $10 to $25/t higher, at $925 to $960/t for products such as SN 500 and SN 600. Bright stock remains tight in supply, and because of this it is priced in the range of $985 to $1,060/t.

It is important to stress that there are very few sellers of bright stock with sizable cargoes to offer, particularly after the award of the Egyptian General Petroleum Corp. tender for a succession of cargoes of 2,500 tons of bright stock to be delivered along with one cargo of SN 600 over the next quarter. Prices from the two suppliers were on a high premium fixed basis from a major, and on a high floating basis from a trader.

It may seem small in the larger order of base oil supply, but these cargoes will shorten up the supply for this particular grade, especially during a time when the market is tight in any case. This could have important repercussions in terms of price and availability for receivers of large bulk cargoes of bright stock, such as those purchasing on a spot basis in West Africa.

One 5,000 ton cargo of SN 600 was reported sold ex Iran at $850/t basis FOB BIK. This is a low price in comparison to offers made in the past out of this region, perhaps showing the difficulties that buyers are facing when purchasing base oils (and other commodities) directly from Iranian suppliers, where western banks have all but deployed an embargo on dealing with any company showing Iranian documents as part of the sale. Some entrepreneurial parties have established operations in UAE, and by buying the material locally, importing and then re-exporting from UAE, these players are managing to get around the documentary problem, but of course at a cost which in many cases prohibits the onward sale of these base oils. The markets such as India and Far East have basically remained price static, limiting any demand which would allow the movement of Iranian base oils using UAE as the export base.

Russian material is in very short supply, as reported by many of the usual traders and resellers in the Baltic and Black Sea export ports. There are some small quantities being exported through Ukrainian ports, most of these small lots finding their way into the Turkish market, where there would appear to be demand for both light neutrals SN 100 and SN 150, and also for heavy grades at the same time. This means that these oils are actually being utilised to produce finished lubricants. Prices have risen for these Russian grades; levels in the Baltic where availability exists are in the range of $880 to $920/t for both SAE 10 and SAE 30.

West Africa has issued many enquiries this week, some for smaller lots of base oils, many for container supplies. The latter importers may not have access to small storage facilities or to the larger lines of credit required to import sizeable bulk cargoes of 5,000 tons and upwards.

This region may be feeling the effect of rising costs again, as receivers in Nigeria, for example, are electing to focus on price rather than quality when looking for base oils. This is borne out by a relatively large 7,000 ton Baltic cargo of mixed Russian base oils being arranged for import into Nigeria over the next few weeks. This material will be of slightly lower quality than prime European production, also reflecting lower pricing of the material.

Prices therefore have taken on a wider spread than normal, since when comparing the arrival prices of a 7,000 ton cargo of Russian grades with prime material shipped in flexitanks and routed to the same destinations, there will be large differentials in the costs involved. The spread for Group I neutrals delivered CFR in this area is now gauged to be $1,020 to $1,120/t, taking account of the previous statement, with bright stock landing in a massive range of $1,080 to $1,300/t.

Reports for base oil prices have been notably difficult to obtain from South Africa. It is anticipated that after July 1, and after the end of World Cup festivities, it will be simpler to get a clear picture of where prices are lying when the country comes back to normality.

Group II numbers have moved up again by some $10/t this week, but larger increases have been communicated to customers by some importers in Europe with effect from July 1. This reflects the higher prices being paid in Far East and the U.S., and is only catch-up time for these grades. Prices at the moment are keeping ahead of Group I levels in most cases, but this delta will be increased substantially after next week, when current levels between $930 and $1,060/t for the Group II spectrum could move up by some $40 to $60/t.

Group III is certain to move during next week with one importer signalling increases of $60 to $80/t for European ex-tank sales. This will push up delivered prices considerably, and some receivers, depending on delivery location, could be paying prices in excess of $1,250/t for 4 cSt and 6 cSt material.

Fundamentals are again confusing the issue for base oil pricing, with crude oil remaining low at $75.50 for WTI, and Dated Brent coming back down to around $74.30 per barrel. This retrenchment will cause anguish to some buyers who use the case that crude levels are not mounting so why should base oils be rising in price. The facts are that feedstock levels have moved up considerably, with vacuum gas oil trading in a spread between $570 and $580/t last week, and with the crack showing at around $11.25. This is a very strong position for this product due to demand both in Europe and the U.S growing by the day.

Thus whilst crude values are languishing, specific feedstock levels are strengthening, putting direct pressure on base oil producers to once again look at realisations and return to a position of improving netbacks. Their answer appears to be price increases.

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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