Europe-MidEast-Africa Base Oil Price Report

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The EMEA base oil market continues to defy all the odds by moving ahead on prices yet again.

Generally prices for Group I base oils have moved up again by some $10 to $20 per metric ton in Europe, creating huge differentials between Far East supplies and those from mainstream producers here in Europe. There has been an element of response to the situation in France, where civil unrest continues to hinder the distribution of all petroleum products, and this is not helping the European base oil scene.

Even with a swift resumption to normal business, it is estimated that it could take up to six to eight weeks to get everything back to some form of normality. The longer the action continues, the longer it will take to get material flowing again.

This situation is not only affecting France, but all of northwest Europe, and additionally all the dependent receivers in locations such as West Africa and South Africa, which depend on French production of base oils for their French formulated and locally branded finished lubes.

One specific problem is that certain agencies are reporting prices which are being used as benchmarks in some contracts for base oil sales. Where this is the case, these agencies are rightly trying to report prices which reflect the actual number at which base oils are sold.

The unfortunate aspect of this process is that many contracts have been drawn up including premia applied to the reported listed prices. Hence, by correctly reporting actual prices, these contract numbers are being artificially hiked by the inclusion of the premia.

Thus a chasing the tail scenario is evolving, giving credence to higher prices which are not realistically reflecting the actual market outside these specific contracts.

Regionally, in the Far East some prices have been dropping as a result of oversupply and lack of demand for Group I grades. This has resulted in many enquiries from traditional receivers of European base stocks, for supplies from Far East locations.

Reponses to these enquiries are not simple and straightforward, and require time and effort on the part of traders and shippers to put into effect, but should this disparity in East-West pricing continue, then surely the arbitrage will win and material will start moving towards Europe from the Far East.

Many of the majors who are producing base oils in both regions are trying to defend their court by not offering export material from Far East for destinations normally supplied by their European counterparts, but this action is perceived as a finger in the dam, and will perhaps only act to delay the ultimate commencement of exports from Far East to locations within regions of Africa, India and Middle East Gulf.

Prices for Group I base oils within Europe (the distinction must be made now between mainland Europe and the rest of EMEA areas) are now in the bands of $1,010 to $1,050/t for the range of light neutrals, and between $1,045 and $1,100/t for SN 500 and SN 600, with bright stock being sold at levels between $1,285 and $1,330/t. All these numbers are based on FOB sales from mainland European ports.

Group II prices have responded to possible shortages within the EMEA markets caused by restrictions at base oil refineries within the United States and the Far East, and buyers say they have been told to expect increases of between $40 and $70/t, depending on grade, viscosity and ultimate destination. Also, there could be a process of allocation introduced where buyers would not be given the full quantities required. These increments will take levels in Europe to new highs of $1,030 to $1,075/t for light vis grades, and $1,085 to $1,130/t for the heavier products.

Group III material is following suit, and will increase in price from next month. Levels for oils delivered within the European mainland are expected to be around 1,240 to 1,265/t for 4 cSt material, with 6cSt grades showing prices at around 1,285 to 1,315/t.

Group III grades continue to be in short supply, and with the market growing in demand for this type of base oil, sources say only new production, some of which will come onstream next year, will stem the steep rising demand for these grades.

Russian barrels are still flowing through Latvian storage, but again not in the quantities which all receivers would like to see. Supply of this material has become somewhat sporadic and erratic, and whilst there can be quantities of between 4,000 to 5,000 metric tons coming out of these refineries, more often than not, the cargo sizes are for 1,000 to 1,500/t of total grades to be shipped.

This has the effect of making the material more expensive to ship per ton, taking away any advantage in the FOB levels being lower than mainstream supplies. Prices are now in the area of $1,000/t for SAE 10 and $1,020/t for SAE 30.

Given that quality parameters are comparable to mainstream supply, lower prices have been heard for lower quality material, and some SAE 30 (maximum V.I. 91) was offered at $985/t during the week. All prices are based on FOB loading out of Baltic ports. No reports have been recorded this week of any new base oil movements within the Black Sea and Sea of Azov.

Only one new cargo of some three kilotons of Iranian SN 500 has been seen this week. This cargo was priced at $885/t basis FOB Bander Boushire, loading Nov. 25, and will add to the other mixed cargo being loaded up to Nov. 18 from the same port. Others are loading from Bandar Imam Khomeini around the same dates during November.

West Africa has fallen quiet this week, after the arrival of one mixed European cargo during the previous week. Another two cargoes are maintained to be on the water en route for Apapa, Nigeria and also for Tema, Ghana, but no confirmation has been gleaned on the composition or the quantities on board for these discharge ports.

Prices for material arriving into West Africa now are moving rapidly upwards, possibly due to the French effect, where locations such as Dakar and Abidjan were dependent on supplies of base oils from French suppliers. Rumor has it that material is in shore tanks on the Seine awaiting shipment, and has been sitting in tank for some three weeks now.

Price levels for Nigerian cargoes have been established at $1,080 to $1,185/t for the range of Group I neutrals, with bright stock where available, at $1,395 to $1,415/t. Some heavy solvent neutral grades, SN 850/900, were heard dispatched to Nigeria, and would arrive landed at between $1,230 and $1,260/t.

Sources suggest the next round of prices for cargoes, presently being negotiated, will be substantially higher, with the shortage in neighboring countries having an effect on imports into Nigeria and Ghana, with some traders rumored to have shifted options to deliver into other than normal receivers, on the basis of higher prices and thus higher margins being achievable. These prices have not been reported as yet.

Fundamentals have not really played any part in the pricing of base oils this week other than to maintain their own levels concurrent with last week. Both crude markers are stable at around similar levels of $82.50 per barrel, with no real directional impetus upwards or downwards.

Feed stocks are having a tough time in a rather depressed market with vacuum gas oil prices showing weakness from both sides of the pond. International Commodity Exchange gas oil futures reflect a similar picture with weakness showing through front month, and across the void into February.

Base oils have once again created their own niche market, but the differences this time are with regional arbitrage scenarios which are much changed from anything witnessed previously.

With new production centers under construction in the Far East, Middle East and of course the U.S., it only remains for Europe and its base oil producers to continue down the conservative route, which until now, appears to have been a somewhat successful approach in adding significant contributions to refinery balance sheets in this region.

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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