With many EMEA players preparing to vacate their desks for the summer break, few deals have been reported. Many base oil production units are taking advantage of the holiday season to run maintenance programs on the lube trains or in some cases on larger units within the refineries which will affect base oil production.
In the main, prices have remained flat at last weeks levels, other than for API Group III oils which continue to be in extremely short supply, and which have notched up some new highs in value terms this week. Supply allocation to blenders is having an effect on the market. With some prominent supply sources cutting back on production and the attraction of even higher prices being paid by markets such as the U.S., there is little likelihood of availabilities improving in the European and Middle East arenas until new production comes on stream.
Group I prices have almost come into line with Group II grades, a sentiment which is also being echoed in other markets such as the Far East. The resultant effect is not that importers of Group II are concerned with returns on their product group, but that Group I producers are enjoying exceptionally high prices versus costs, due to scant availabilities for all Group I material.
Prices for Group I are still in the range of $935 to $985 per metric ton for light solvent neutral grades, with other material such as SN 500 and SN 600 realising between $950 and $990/t, all basis FOB mainland. Bright stock is still showing at $1,075 to $1,150/t, but it must be emphasised that these prices are being quoted by sellers talking prices and are not reflections of actual deals that have been completed. However, due to limited availabilities in the market, these price levels are probably achievable, given that buyers have little choice when base stocks have to be replenished.
Group II prices appear to have remained flat in spite of all attempts by importers to improve their netbacks for these grades. Prices are now close to Group I in Europe, and in some cases are below Group I heavy neutrals. Outside the mainland areas these Group II grades still carry a considerable premium over Group I prices, sometimes as much as $75 to $100/t. Levels are currently assessed at between $970 and $1,050/t ex tank from main supply points.
As mentioned above, Group III grades have gained momentum again this week and are pushing levels at euro equivalents of $1,330 to $1,410/t ex tank in northwest Europe and the Mediterranean. In the Middle East Gulf area these grades are also moving to new highs, with prices that could be some $25 to $50/t higher than in mainland Europe, although these sales tend to be on a delivered basis rather then ex tank.
Iran has again exported both SN 150 and SN 650 at a price of $860/t, for a total of 5,000 tons ex BIK. With these diminishing exports, buyers are obviously not in a position to trade equably with Iranian producers, and these cargoes may find their way for re-export, either through India or UAE.
Iranian producers have not yet appeared to have a problem of containment, perhaps with some production being adjusted to lower levels, as one refiner confirmed this week. There are reports of bright stock required for import, but with difficulties in completing these transactions, Iranian blenders may have to utilise the lower quality bright stock being produced locally in relatively small quantities, or rely on heavy neutrals such as SN 850 and above to increase viscosity for some finished lubes.
Demand in the Middle East Gulf has slowed over the last month and will probably not restart until after the summer season, which traditionally means a general exodus from the region due to the extremes of temperature. Saudi Arabian producers have maintained their price levels to Gulf Cooperation Council countries, but in view of sparse demand, they will only review prices towards the end of August.
South African demand appears to have reawakened with a vengeance after the World Cup festivities. Throughout the South African states and East Africa, with the onset of springtime in that region, there appears to be considerable demand to replenish stocks from locally produced material and also using imports from the Far East and Europe. European supply may be difficult due to lack of avails, but there are rumours of Chinese exports finding their way into East and South Africa.
West Africa was subdued by bad weather which all but closed roads and ports in the Delta region in Nigeria. Ghana was also experiencing flood conditions, which dampened activity in the base oil market. There were a couple of enquiries from the usual traders in Nigeria, but only looking for end-August or early-September arrivals. These were for the normal composite cargoes with emphasis on the heavy ends of the grade spectrum, but two local traders are looking actively for small quantities of Group II. This may be more difficult than imagined, due to many Group II producers not having the facilities to load flexibags in containers. Prices for end-August arrival are close to last weeks figures, $1,070 to $1,095/t for light neutrals, $1,100 to $1,125/t for SN 500, and $1,180 to $1,230/t for bright stock.
Turkish buyers are back in the market this week with a number of large enquiries, one for a stand-alone quantity of 1,000 tons of bright stock, which will be very difficult to fill, given limited availability and the reluctance of many producers to sell this high-value grade on its own. There was also an enquiry for 8,000 to 10,000 tons of mixed solvent neutral grades, to be a monthly requirement for traders in northwest Turkey. Turkish buyers are looking for prime European supplies of high quality base stocks at Russian Black Sea prices. This will not be happening in the immediate future!
Russian export material was noticeable by its absence this week, and no references to any movements could be traced which had not been reported previously. There is still the rumour of traders talking directly to Russian refineries, but without the infrastructure to transport and store base oils as happens currently, it is difficult to assess the financial advantages of adopting this method of extracting base oils from Russian and Belarus. One small cargo of SAE 10 and SAE 30 was being offered FOB Liepaja, at prices thought to be in the region of $925 to $960/t.
WTI crude oil tested the waters at levels close to $80 a barrel in trading on Tuesday, but retreated back closer to $78.50 per bbl. Dated Brent was down around $1.50 to $75.60 per bbl. With crude still trading in a relatively narrow band, and feedstock values showing little strength, it is difficult to see base oil prices rising much further.
Lubricant demand is tailing off throughout EMEA region, and doubts have been cast as to whether demand will reappear after the summer recess. Some sources voiced the opinion that, like China, many economies are going through a period of stagnation after the initial recovery during the first part of this year. Whether growth can be sustained is certainly in doubt.
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.