Europe-MidEast-Africa Base Oil Price Report

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A rather dull week on the EMEA base oil scene, with little activity taking place, possibly due to the holiday season being in full swing throughout the whole region.

Reported activity basically involved cargoes being loaded which had been booked some time ago, and few pieces of new business apparently were transacted during the course of the week.

Buyers were still heard to be resisting any form of price increases, hinted at by some producers. There is still some confusion as to which direction the market is taking, with one segment of players suggesting that API Group I prices are due to fall on the back of reported decreases to U.S. postings for these particular oils.

Others are saying that they believe that prices will move upwards in line with Group II and Group III base oils, although to compare relative prices of these three oil types is increasingly difficult as time goes on, with many additional economic factors entering the price comparison equation.

Prices were therefore left unchanged from the previous weeks levels of $935 to $970 per metric ton for light Group I neutrals, with heavy grades such as SN 500 remaining between $965 and $1,010/t, and bright stock still in the range of $1,100 to $1,170. These prices relate to mainland Europe FOB levels for future business being negotiated during current talks.

With crude oil coming some $4 per barrel off the new highs seen last week and now trading marginally above $76 for both markers (WTI in the U.S. and Dated Brent in Europe), fundamentals appear to show a slightly weaker stance than previously gauged.

However, vacuum gas oil and International Commodity Exchange gas oil futures are still maintaining healthy signs for the short and medium term, which could sustain feedstock levels to at least keep base oil prices at current levels.

More and more pressure is being brought to bear on producers distancing themselves from a link with crude oil and base stock prices. Raw material costs are now being based on real petroleum product prices, on an ex refinery basis, being purchased by the base oil unit; this means that prices are unlikely to fall given the current outlook for these feedstocks.

Buyers in the meantime are still hanging on to the links with crude and product pricing, insisting that base oil prices will adjust themselves to reflect the current relatively low levels of crude prices.

Ultimately, demand is still slightly outstripping supply for Group I base oils in EMEA, so with this scenario it is difficult to see how prices for this product group would start to decline.

Group II prices seem to have moved up yet again, on the back of strong demand for these imported grades, with levels touching $1,010 to $1055/t for the light grades, and heavier-vis material being sold between $1,045 and $1,100/t basis delivered European ports.

Group III also appears to have found renewed strength in pricing this week, due to continuing shortages of this material throughout the European mainland. Prices are now being talked at levels approaching a minimum of 1,000/t for 4 centiStoke base oil, with 6 cSt material coming in at around 1,020 to 1,065/t, basis delivered ex truck. There would appear to be no end to increasing demand for these grades, along with 8 cSt.

All available production of imported Group III is being soaked up by EMEA blenders, who are constantly moving forward in terms of new finished product innovation, requiring the inclusion of either Group III within Group I blends, or a transition move to Group II-type base oils.

Russian Group I base oils have again been seen offered ex Baltic loadports at slightly higher levels than before. The two main grades, equivalent to SN 150 and SN 500, are now being offered at FOB levels of $960 to $985/t, depending on specification and quality.

There is a wide range for specifications of material coming out of the Russian refineries, with some material being close to mainstream European production, whilst other grades of lower quality are being sold at much lower prices, reflecting the inferior qualities of the material.

Iranian cargoes for September have not been witnessed this week, suggesting that this source of base oil is quickly drying up due to political sanctions being imposed, making transactions such as buying oil and remitting funds to Iranian producers almost impossible through the Western banking system.

Prices are considered to stay in the low range of $845 to $865/t FOB, should any further material be exported through the southern Iranian ports of Bandar Imam Khomeini or Bandar Abbas. This price band applies to grades SN 150 through SN 650, all grades being priced unusually at the same level.

A Far Eastern tender for Bangladesh has been issued for some 7 kilotons of three main grades of Group I base oil, but whether any European producers will support this requirement remains doubtful since FOB levels plus freight would render delivered prices uncompetitive against Far East supply, where prices remain static amidst a local market with lower demand factors.

This type of tender would almost always have been supplied from European sources in the past, due to relative prices between East and West, but this is no longer the case.

South Africa appears to be emerging as a real growth market for base oils, and more enquiries have been filtering out from this area over the last 10 days. Prices for suppliers are attractive, producing healthy netback for European producers, but with other alternatives (such as a raft of South American enquiries being floated for Brazil, and many refineries undergoing maintenance and repair work at the moment), European sellers are finding it difficult to allocate quantities of base oils to each of these areas.

Even with receivers and traders offering to pay higher prices, these is still not enough availability of all types of base oil to go around.

This situation has also affected West Africa, where many regular sellers are finding it hard to lay hands on the quantities of mixed grades which are urgently required in locations such as Nigeria and Ghana, where locals have deferred replenishing inventories; some are now desperate to import base oil to cover local needs.

Prices will certainly move upwards for imports in these areas, and levels are estimated to lie now within bands such as $1,125 to $1,150/t for solvent neutrals, and as much as $1,275 for bright stock in relatively large quantities.

The EMEA base oil market is relatively stable, a static market with little scope for major expansion. Most producers appear satisfied to produce just enough material to satisfy their clientele, but also to sell these availabilities at acceptable price levels.

These realizations are providing satisfactory netbacks, a much different scenario from the days when the market was awash with all types of material and sellers often had to reduce prices to maintain market share, which would appear to be the fundamental holy grail of all producers of base oils.

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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