Europe-MidEast-Africa Base Oil Price Report

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Somehow the invitation to the party in the rest of the world has not reached the EMEA region. U.S. and Far East prices moved upwards, but Europe and the surrounding markets appear to be lagging behind. Refiners aspirations are running high, but price rise announcements have yet to be made by most producers.

Fundamentals changed, then landed back in the same position as this time last week. Crude oil dipped during the latter part of last week, and then reemerged with a strong upward movement on Monday. WTI is just over $80.50 per barrel, with Dated Brent showing at just over $77. Sentiment for crude is strong, with some traders calling a possible $90 per bbl level within the current month.

Feedstock prices are following, and in some case leading the market. Low sulphur vacuum gas oil has moved to new highs and at a crack of nearly $5 per bbl, will fuel the movement for refiners to take account of this scenario when allocating costs to base oil production.

Base oil prices have not moved as yet in the European arena, but such are the expectations of both sellers and buyers that the market will have to rise in the next few days by some $40 to $65 per metric ton to take account of additional raw material costs. Producers are now talking new price levels, and will only consider selling material at a premium to last weeks levels, which realistically can be termed historical at this juncture.

Prices are no longer being quoted in the same ranges as before. Levels are now being established in the market between $755 and $825/t for API Group I solvent neutrals, with bright stock moving ahead by some $25/t this week to $910 to $980/t, all basis FOB mainland European ports.

Demand is picking up for European base stocks but not entirely from within the region itself. Many cargoes are now being offered to the Far East, as well as the more normal deep-sea exports to South American and African destinations. The relatively sudden major Group I price movements in the Far East have created a pricing vacuum, and hence an arbitrage for European barrels to move to these locations.

As wide and varied as the EMEA area is itself, there are still pockets in the region where base oil prices are relatively depressed, such as Iran and the United Arab Emirates corridor. A price offered this week for a cargo of heavy Group I neutrals was showing at $740/t, basis FOB Bander Bushire. With some sellers in that area complaining that they cannot sell their material at prices which cover their costs, they are presumably currently dumping material to clear inventories for other oil coming down the line.

Receivers for these grades in UAE and India have also been instrumental in holding back these numbers, being able to switch to European and Russian imports to hold the market in their grasp. Sellers in that region are now looking for levels between $740 and $785/t, basis FOB southern Middle East Gulf ports, but with limited uptake from potential buyers.

Russian prices in both the Baltic and Black Sea are destined to follow the mainland European trend, and numbers being quoted for prompt delivery ex Baltic ports have already seen rises being applied. Levels are now showing around $690/t for lower quality material in exceptional cases, with prices jumping considerably for European standard base oils to $755 to $790/t for SAE10 and SAE30.

There may be other reasons for Russian material to soon reach new demand and pricing levels, these being the turnaround plans for a number of Russian refineries with base oil trains attached. These turnarounds are planned to take place within a period of two to three months commencing in April. Whether this is by design or accident, these simultaneous closures will have an effect on the export quantities available from both Russia and Belarus, particularly in the north through the Baltic loading ports.

West Africa, and particularly Nigeria, has been to the forefront of the enquiries list this week, with a number of the regular importers looking for large cargoes over the next four to six weeks. Perhaps these traders are trying to beat the anticipated price increases which will be in the pipeline. Prices landed into the region will now be in a band between $865 and $890/t for Group I neutrals, with bright stock taking a new elevated position around $1,000 to $1,070/t, basis CFR.

Once again there have been rumours of Group II material being imported into this area of West Africa. Perhaps one of the majors blending in this area will move to the higher quality finished lubricants which will ultimately be required, particularly for the passenger car motor oil market.

European prices for Group II/II+ appear to have withstood the brunt of the increases from source producers in the Far East and the U.S., and Group II sellers will be pleased to see the pricing gap between their material and Group I products starting to narrow. Prices for Group II base oil start around $890/t, whilst grades with excellent NOACK properties for example, are selling into the market between $960 and $1,040/t. These prices are being quoted on an interim basis, in the sense that the full effects of the increases applied have yet to filter through to all purchasers of these grades.

Group III continues to expand in the EMEA area as a whole, and with Luberef looking at new production of these grades from Yanbu within a couple of years time, Group III grades appear to have become well established within the EMEA region. With the current production of Group I base oils in this region, this may be the way in which the market sees finished lubricant development taking place.

Prices for Group III are in the widest band, between $950 and $1,300/t on a delivered basis, depending on all the varied factors which can affect the final price for these grades. This range of numbers does not take account of any promotional sales, discounted trials, or other vagaries of Group III pricing.

It looks like the EMEA market is finally poised to make an upward price adjustment of some consequence, which even if observed by most producers and sellers, will still allow the movement of European and Middle East Gulf Group I material to flow to areas where prices are expected to rise commensurately to maintain the current arbitrage.

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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