Existing buyers are receiving base oils at higher prices than their previous purchases, but this could relate to base oil prices which were valid some months ago. It would appear that both buyers and producers are content to leave any aggressive selling and buying alone for the moment, to take stock of what might happen over the holiday season when market activity naturally slows down for some two months.
Demand for specific products such as vacuum gas oil was markedly strong in Europe. Although VGO levels have largely retracted from highs of some two weeks ago, demand may correct these indifferences. The VGO crack increased suddenly early this week, making life somewhat complicated for base oil producers. On the one hand they are being beaten about the head by buyers stating that crude prices have fallen yet again; when crude was at current levels previously, base oil numbers were much lower. On the other hand raw material costs are mounting, and many refinery managers are insisting that all product groups stand on their own two feet, without subsidies from other more buoyant products such as gasoline.
Producers are again under pressure to increase price levels, as has been witnessed in the Far East, where ExxonMobil declared increases of some $50 to $60 per metric ton on Group I and Group II base oil coming out of Singapore. These increases will not be in isolation, since European producers have already declared that from current dates, all new offers for base oil may be at substantially higher prices than previously seen in June. Obviously this relates to wherever, and whenever, producers have material to offer. It also produces a foggy picture of the European market, since some producers are gung-ho to increase numbers by some $50 to $70/t, whilst others are adopting a wait and see attitude. Without posted prices in the European market, this scenario is always going to be the case.
Prices this week are relatively unchanged from last weeks quotes, primarily due to lack of buying activity in the market. There may have been some small increases to specific Group I grades, but other producers have stated that they are holding back to appraise what happens before declaring any suggested large increments to base oil prices.
Prices are still in the ranges of $900 to $945/t for light vis solvent neutrals, with heavy neutrals falling into line between $925 and $965/t, all basis FOB mainland Europe or North Africa. Bright stock lies in the range of $1,000 to $1,065/t in bulk, whilst small lots of this grade were reported being offered at levels above $1,100/t FOB for supplies in containers.
All producers have expressed concerns regarding supplies and availabilities throughout the next two months, during which two or more refineries will be performing some routine maintenance work. This will tighten the supply chain even further.
Elsewhere in the EMEA region there have been few reports of any price movements. Iranian barrels are still being exported, but on a much more restricted reporting basis than before. Sellers have not had the opportunity to push numbers higher due to the Western restraints placed on the country, and SN 500 and SN 600 are still priced around $860 to $875/t, basis FOB southern Iranian ports.
Sanctions are have a greater effect on these exports, and it may merely be a question of time before these product movements dry up altogether. Production will be diverted to domestic or locally sympathetic markets only, since base oils currently being imported in to Iran will also come under scrutiny and perhaps embargo.
Saudi Arabian producers have reportedly announced a small increase of some $20 to $25/t for Group I grades, but there have been no verified export transactions at these new levels as yet. Perhaps this is an echo of the increases being witnessed in the Far East.
There have been no reports this week of any sizeable Russian or Belarus exports being traced through the normal channels. This may be due to the larger than normal internal and domestic offtake at this time of year, or may be an effect of production being halted at a couple of refineries within Russia, due to problems with other parts of the installation, where feed stocks would normally be sourced.
There is talk of material coming through later this month, with SAE 10 and SAE 30 in the range of $895 to $920/t, basis FOB Baltic seaport. These cargo lots are being sourced from a variety of locations within Russia and Belarus and appear to be comingled in tank on arrival at the FOB loading ports. This may be one reason why certain quality issues have recently been raised by some receivers in Northwest Europe.
West Africa has gone quiet this week after a flurry of enquiries during the previous few weeks produced very little confirmed business. Buyers in Ghana, Togo and Nigeria have all shied away from the offers for supply of bulk cargoes and containerised supplies for this region. Buyers have voiced surprise at the high levels of prices offered, wrongly anticipating that the market was falling and that base oil prices should have been reducing, not moving up.
Offered prices for bulk supplies of composite bulk cargoes were in the ranges of $995 to $1,045/t for SN 150, $1,020 to $1,070/t for SN 500, and $1,110 to $1,145/t for bright stock, all basis CFR West African ports. Supplies for smaller quantities of the same grades in containers were priced around $150/t higher due to loading/ hardware costs and higher sea freight.
Once again many buyers in this region are being hard pressed to produce the necessary banking credentials to be able to buy large parcels of base oil at these new higher price levels, and will either look to buy on a cooperative basis with other importers, or will look for smaller parcels for which their facilities can provide financial cover.
Group II/II+ base oils appear to be gaining ground in terms of acceptability within mainland Europe, although one reason for this heightened interest could be the lack of availability of some Group I grades, particularly the heavier neutrals. Importers have moved prices again this month, and prices are in the range of $945 to $1,075/t, depending on viscosity of each grade.
Group III grades are in short supply with few signs that this situation will change in the short or medium term. With the added appeal of the U.S. market where better realisations can be achieved, and increasing source costs, producers of these oils have increased prices within Europe by some $65/t this week, and are reported to be looking at further hikes to come. With a slight improvement in the exchange rate between dollar and euro, the applied increases were not quite as high as first considered. But this material is in short supply, and buyers are eager for new production from locations such as Bahrain, Korea and eventually Spain.
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.