Europe-MidEast-Africa Base Oil Price Report

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From a base oil perspective, Europe must now be seen as an entirely different market. Mainland Europe and North Africa face a very short market, with few availabilities between now and the end of 2010.

This contrasts with some other areas of the globe. In the Far East, for example, there has been no real upswing in the market, and demand remains flat. With production coming back on stream from almost all units, an excess of material will begin to search for alternative receivers outside the region.

In Europe buyers are struggling to lay hands on sufficient material, particularly API Group I, to cover local markets for finished lubricants. Some commentators have mooted that European producers deliberately kept base oil quantities below demand levels, thus encouraging higher prices and sustaining buying interest in those supplies being offered. On analysis, however, prices in Europe are still relatively low compared to other areas of the world. This applies to all types of base oil, not merely indigenous Group l grades. Prices are certainly moving within Europe, but they are still playing catch-up with the Far East and U.S levels.

Prices have moved upwards this week in response to a number of factors, not least of which has been a large hike in the value of crude and feed stocks. Crude has moved near $82.25 for WTI, with Dated Brent spot levels touching $83.35 per barrel. This reflects a huge percentage gain over the last few weeks, when crude traded in a narrow band between $74 and $78/bbl. Feedstock levels moved quickly upwards, with distillates moving by some $50 per metric ton in open trading. Vacuum gas oil has vaulted to new highs in daily trading, contributing to price-increase pressure on base oils.

Prices for Group l base oils in the European mainland are now firmly established in the range of $985 to $1,025 per metric ton for light neutrals such as SN 100 and SN 150, with SN 500/600 showing around $1,025 to $1,070/t. Bright stock is approaching $1,175 to $1,260/t, with all prices basis FOB main port loading within Europe. With very few sellers willing to offer fixed prices for future loading, these levels will now be applied to prompt loading, with perhaps further upward adjustment to follow in the next few weeks.

With local demand sustaining these prices, it is difficult to see increasing possibilities for export volumes.

In areas such as the Middle East Gulf, receivers have ruled out taking material from European supplies. This is due to lack of availability and because delivered prices would be far higher than local and imported material from Far East supplies. Iranian producers have posted one cargo of 3,000 tons of SN 500 to be sold on a prompt basis at $885/t, FOB Bander Bushire. It is reckoned that this deal had been completed some weeks ago, and pricing now will be substantially higher for future liftings of this type of material. Possibly some $80/t over this price would now be required to purchase this grade currently.

Saudi Arabian producers have hoisted their prices to the range of $975 to $1,010/t for light neutrals and $1,000 to $1,040/t for heavier neutral grades. Bright stock is expected to be priced between $1,150 and $1,185/t.

In the Baltic there are some small quantities of SAE 10 and SAE 30 available, but with new price tags which are following the European mainstream levels. Prices offered are $985/t for 2,500 tons of SN 150 equivalent, and $1,000/t for some 1,500 tons of SN 500, carrying slightly lower specifications. This material is offered on the basis of FOB Baltic loading port for prompt sale.

Some traders are looking to source large quantities of Russian and Belarus material for supply to West Africa, since with the scarcity and the high price levels for heavy neutrals and brightstock, alternatives are continually being sought. With Russian demand still running high, it may be difficult to lay hands on sufficient material to build such a cargo, other than to tranship through a main port such as Antwerp. FOB prices would have to reflect the additional costs of such a routing, but with availability of premium grades being severely lacking at this time, this approach may take shape.

Other Russian material is being offered out of Black Sea ports, but only SN 150 is available at this time. The prices for this material exceed the buying ideas in Turkey by some $80/t, leaving it difficult to see how receivers in this region will accommodate requirements at the expectation prices of $920 to $945/t CIF Gebze and Derince. There have been rumours of material being offered from the Far East into some Turkish ports, but again it is impossible to see how these prices can be entertained by receivers looking for unrealistic numbers.

West Africa has been busy in terms of enquiries this week, but most buyers are waiting and have been dismissive of offers made over the past 10 days or so. Some traders and importers are looking at substitute grades such as SN 900 from Russia, and others are considering heavy naphthenic material from the U.S., but there are many technical considerations to be taken into account when using material with these specifications, and the transition from using bright stock is not so simple as many might think.

South Africa and East Africa have received cargoes from Far East suppliers, with Group ll and Group lll grades imported along with Group l material. These imports are reported to be among the first which some importers are considering from Taiwan and Indonesia, forming a platform for future business between these locations. Prices have been stated around ex-tank Singapore plus premium, plus freight, which would mean SN 150 at around $1,045/t and SN 500 around $1,155/t, with Group ll light and heavy grades some $30/t higher.

There are unconfirmed reports of a cargo of Group ll grades exported from Taiwan to UAE, through the auspices of European-based traders, showing that arbitrage and opportunity may be around the corner for new trade routes for the base oil market.

Group lll prices have moved again to new highs, and imported material from the Far East into the Mediterranean and Northwest Europe are now in the region of 1,210/t for 4 cSt, and 1,240 for 6 cSt base oil, basis delivered by truck. There has been a marked increase to prices for these grades over the past three or four weeks, with demand still at a peak, and the exchange rate between dollar and euro pushing these levels ever upwards.

Many buyers are still reeling from the fact that, when crude oil fell around eight to 10 weeks ago, base oil prices remained high and were not discounted. Now that crude has hoisted itself back above $80/bbl, there has been a renewed emphasis from producers to use this hike to support higher feedstock levels and consequently higher base oil numbers. Some large buyers in Europe and the Middle East commented this week that there appears to exist a scenario where one-way traffic flows down the refiners main street.

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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