Europe-MidEast-Africa Base Oil Price Report

Share

With most players returning to their desks early this week, discussions have centered on the price of base oils. Debate is not whether an increase will occur, but how much and when.

Some sellers within the EMEA regions say their refiners have not yet made clear what levels of intra-company price increases will be necessary to account for raw material cost changes. Most are of the opinion that substantial increments will be required to ensure satisfactory netbacks through the base oil slate.

Added to this are rising demand for all base oil types and producers with no excess production. Future rates for supply are being contemplated by producers now, and will be applied for any new business being transacted.

Many sellers were unwilling to even indicate prices early this week, such is the uncertainty of the situation.

Crude levels rallied in early week trading to new recent highs at $95.65 per barrel for Dated Brent (albeit later retracting to $92.60), and WTI showed around $89.95/bbl after falling back. ICE gas oil front month prices have climbed above $792/ton in trading earlier this week, indicating that with the advent of cold weather on both sides of the northern Atlantic, demand is set to rise again for these products. The overall effect is price pressure on all refined petroleum products, including vacuum gas oil and fuel oil, resulting in direct cost increases for the production of base oils.

It has been difficult to isolate actual prices for all groups of material. It would be wrong to quote prices from the last few weeks as being current levels, since these cannot be found anywhere in the market. One or two sellers have ventured to give their ideas of new prices, but since it is early in the year after the holiday period, few new transactions have taken place prior to this report.

Those few sellers offering API Group I grades for February loading have stated prices around $50 per metric ton higher than those previously quoted. Whether these prices will stick is another matter, since these deals are being negotiated right now, but with a firm sellers market showing from all angles, it is difficult to see that prices such as these would not be applied. Levels are therefore established on the following basis.

Group l light solvent neutrals are now in the range of $1,085 to $1,130/t, with heavier grades such as SN 500/600 at $1,115 to $1,145/t. Bright stock is between $1,355 and $1,400/t. All prices are quoted on the basis of FOB for prime base oil grades ex mainland Europe and North African ports.

Baltic supplies of SN 150 and SN 500 have moved markedly up in price over the last week or so, showing that Russian and Belarus base oils have elected to keep pace with anticipated mainland European levels. Where these increases actually took place is not clear since the supply chain is relatively long, taking some weeks from refinery to FOB storage in the Baltic ports. Suggestions are that the increases have been applied by the traders selling FOB, anticipating that replenishment stocks from the refineries will be higher priced than previous purchases.

Price levels for these base oils are now at $1,025 to $1,040/t for SN 150, and between $1,035 and $1,060/t for SN 500 or equivalent Russian base oil grades. Heavier neutrals such as SN 900 are now around $1,100/t. There have been no reports from Black Sea suppliers, but there are indications that rail-borne DAF sales into China have risen by some $30 to $40/t.

No firm reports have been received this week regarding Iranian exports of Group I solvent neutral grades. Producers in Iran, however, have said that the shortage of SN 150 in the region has escalated prices for this grade far above the resultant prices for SN 500. Levels for the light neutrals in bulk quantities are being negotiated around $1,050/t, basis FOB BIK port, whereas SN 500 at $1,110 to $1,120/t, and SN 650 at $895 to $920/t, are much lower in price. This pricing range reflects not only the demand criteria, but also the lower quality of the SN 650 grade.

No comments were received from Iranian sources as to future prices, except that exporters were reviewing numbers in light of feedstock costs and would be applying any necessary measures as soon as Far Eastern and European prices became a clearer.

Saudi Arabian FOB prices were understood to have risen over the past ten days by some $30 to $55/t depending on grade. Levels from Saudi Arabia are now assumed to lie alongside mainland European prices.

A number of enquiries have been received from West Africa for Group l products, for imports into Ghana, Nigeria and Angola. Buyers again appear to be trying different supply sources and trading routes by placing these enquiries into areas such as Singapore and the United States. No comments have been received yet as to the success of these alternative sources, since additional enquiries have been placed into the European arena.

Prices have not yet been established on factual deals, but one cargo of mixed Group l grades en route to Nigeria will be arriving with prices on a CFR basis between $1,130 and $1,185/t for the solvent neutrals on board, with bright stock around $1,400 to $1,445/t. Smaller imports in containers have seen bright stock at $1,495/t delivered into Ghanian ports.

South Africa has been relatively quiet, with reduced activity in the mining and agriculture sectors over the seasonal and summer holiday period, and base oil business has been scant. Normal activity is expected to resume in this region over the next few weeks.

Group II/II+ prices in Europe have been moving progressively upwards, and it would appear that rather than have one-off large increases to these grades, suppliers are prepared to move prices more often and gradually, maintaining the all-important differentials between these products and Group l prices.
Prices are expected by receivers and end-user blenders to appreciate in the next few weeks, with numbers now being quoted between $1,100 and $1,160/t for the light viscosity grades, and heavier material at $1,195 to $1,275/t, depending on whether the material is delivered in true bulk, or more often by barge or tank truck.

In light of movements at source production centers, it is realistic to expect that another tranche of price increments will be applied to imported Group ll grades over the coming weeks.

Group lll levels have not been reported as moving since last week, since many of the importers and domestic producers have been out of station. Prices are maintained at 1,310 to 1,340/t for 4 cSt grades, and 1,360 to 1,385/t for heavier 6 cSt base oils. As for Group ll grades, source prices for Group III are being reviewed both for European produced and imported material from Far East. Hence sources expect numbers for these grades will rise in line with other types of base oil.

As the EMEA market emerges from weeks of relative inactivity, it confronts enormous upward changes in fundamental raw material costs, along with encouraging economic news that perhaps the recessionary times are behind, and that growth in the lubricants sector of the market is once again in vogue.

Increased demand, along with rising raw material costs, can have only one result, and the EMEA market is bracing for prices rising in the short term.

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.

Related Topics

Base Oil Reports    Base Stocks    Market Topics    Other