Europe-MidEast-Africa Base Oil Price Report

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Producers are taking stock of their supply situation after the recess, whilst buyers are assessing inventories and their requirements for restocking during the final quarter of 2010. Status quo remains regarding prices in the European mainland, with few deals transacted during the last days of August.

Prices are almost the same as last week, echoing the situation in Far East markets, where base oil pricing has been nearly static for the past seven or eight weeks. The likelihood of this situation following in Europe is doubtful, however, since there is emerging demand to replenish low inventories around mainland Europe and environs.

In mainland Europe, API Group I light solvent neutrals are classed between $935 and $970 per metric ton, with heavy neutrals between $965 and $1,020/t. A small increase at the top end of the scale is due to small purchases of material for containerised sales. Bright stock remains buoyant at $1,095 to $1,175/t, all prices basis FOB.

Russian exports seem to be on the move again, with reports of a couple of traders looking to build substantial cargoes from the Baltic. They are presumably using these supplies as substitute grades, and lower price levels, for importation into West African countries such as Nigeria, Togo and Ghana. Quantities of SAE 10 and SAE 30 (SN 150 and SN 500 equivalents), along with other heavier grades such as I-50, are being assembled at loading ports in Latvia, and should be ready for loading around second half of September.

Prices for these grades have not been verified as negotiations are still being finalised, but levels are estimated to be in ranges of $935 to $965/t for the SAE grades, with the heavier industrial classified base oils commanding prices between $970 and $1,000/t.

These oils are forthcoming in spite of the rail problems encountered by Transneft, due to large areas of fire damage within Russia during the last two months. These exports may be coming from refineries based in the south and eastern parts of the Republic, and of course Belarus, which did not experience the same level of exposure to the fires further north.

In the Black Sea there have been further sales of light vis Uzbek material destined for the Turkish market, some perhaps even finding their way into the blending of finished lubricants. There are also unsubstantiated reports of other Russian base oils being exported from Sea of Azov, but these reports have not been corroborated. This may be alternative routing of exports due to current transport problems.

In the Middle East Gulf region, markets have been relatively quiet, but there are documented reports of Iranian base oils being sold this week, the first with loading dates around 30 September. A lot of 3,000 tons of SN 150 is being sold at $850/t FOB BIK; another cargo of 3,000 tons is being sold at $885/t FOB Bander Boushehr with prompt loading dates; and a further quantity of some 5,000 tons of SN 650 sold basis ex works, Tehran, at $810/t for end-September loading. The FOB levels are slightly higher than last reported sales, perhaps showing that there are now established methods by which these cargoes can be sold out of the area, thus creating a demand for these base oils within the region and beyond.

Saudi Arabian producers have not announced any changes to prices as yet, perhaps waiting until the region is back in full swing before giving any changes to what are considered to be the closest to posted prices occurring within the EMEA region.

South Africa continues the healthy enquiry spree for Group l, Group ll and Group lll material, but without finalising many of the deals put on the table. Perhaps with more potential sellers back in residence, these enquiries may be fulfilled over the next few weeks.

West Africa, particularly Nigeria, has seen a surge of enquiries coming out this week, with two extremely large cargoes requested by a couple of the normal receivers. Whether these cargoes are both functional in the assemblage sense, and also the delivery sense remains to be seen, but these enquiries are for shipments in excess of 10,000 tons of mixed Group l grades, perhaps looking at two port or jetty discharges for the cargo.

Prices in Nigeria are expected to remain in the areas previously anticipated for September arrival. Levels for Group l neutrals will be between $1,060 and $1,120/t, with bright stock at $1,180 to $1,220/t, all basis CFR.

There have also been a number of enquiries for Group lll material for import into Ghana, Senegal and Cote dIvoire. Although there have been no reported enquiries for Group lll grades in Nigeria, there are two enquiries in the market for the supply of small quantities of Group ll material to be delivered in flexibags. These have been milling around for some time, since most of the Group ll importers into Europe do not have the facility to deliver base oil in this manner. It is anticipated that these supplies will be made from Far East producers, where these delivery methods are commonplace.

European imported Group ll prices are rumoured to be increasing by some $10 to $29/t from around Sept. 1, but none of the usual receivers have confirmed that this is actually taking place. Prices now range between $995 and $1,110/t depending on vis and delivery method.

Group lll demand remains strong throughout the region, perhaps showing that with growing availabilities of these grades, large national and major blenders in the Middle East Gulf and mainland Europe are electing to go down the Group l-plus-Group lll road, rather than change blendstocks completely to Group ll/ll+.

Prices for Group lll have stabilised in Europe this week, even with demand still strong. Four cSt material is selling at 1,000 to 1,030/t on a delivered basis, with 6 cSt grades at 1,035 to 1,065/t, basis delivered by truck in mainland Europe. Use of 8 cSt material is gaining in Europe, but with scant supplies of this grade to report numbers, prices are estimated to be in the region of 1,100/t delivered.

Fundamentals are again spooking the market, with crude rising last week, one of the largest gains seen for some time, but still remaining at relatively low levels. This price turbulence is due to the uncertainties within the economies of the West, but crude levels are not extending to the highs seen some six weeks ago at $80-plus. WTI is showing marginally above $74 per barrel, and Dated Brent is showing positive signs of moving through support levels to $76.25 per barrel.

Petroleum products have softened over the week, reflecting the previous downward trend in crude levels, and have not totally responded as yet, with vacuum gas oil, for example, struggling to find positions either in Europe or in the U.S. ICE gas oil futures have retracted during the week, now showing a slight recovery in front month trading.

Base oil prices are flat, and may stay this way for the foreseeable future. With crude and feedstock values oscillating almost within a defined range, and with the supply/demand picture also more or less in balance, it is going to take something relatively dramatic to change the EMEA base oil market.

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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