Europe-MidEast-Africa Base Oil Price Report

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Talk this week is not so much about rapidly rising base oil prices, but more about the demand surge and lack of supplies from some main producers in mainland Europe.

A number of planned turnarounds are underway, with some major producers reigning in API Group l supply. A smattering of production problems has exacerbated the situation. In fact the market can no longer be described as tight. It is short.

Buyers everywhere are scrambling. Traders this week commented that the first priority was to gain access to material, and then to offer this supply to receivers who are keen to take any surplus material.

Producers have recognised this chance to hike numbers by $50 to $80 per ton for almost all base oils, whether under contract or on a spot sale basis. These increases extend not just to Group l grades, but also to Group II and Group III material supplied to the European market.

Prices for Group l light neutrals are now $1235 to $1265/t, with heavier oils such as SN 500 moving upwards to $1275 to $1300/t. SN 500 is in huge demand, not just from European blenders, but also from receivers in Central and South America, India and the Middle East. Far Eastern demand has not diminished, either.

Bright stock, depending on specification, can be found between $1495 and $1600/t. Prices for bright stock also depend on final destination; certain high-demand areas such as West Africa are paying higher premiums.

Group II/II+ base oils have almost doubled in price over the last 12 months. Light Group II grades now are $1260 to $1310/t, with the higher vis grades $1320 to $1365/t, basis supplies ex tank, Northwest Europe and Mediterranean.

Many European blenders are looking seriously at using Group II blend stocks, since they cannot rely on a steady stream of Group l supply to cover requirements. This should be a wake-up call to traditional Group l refiners, but not many appear concerned that this will lead to a loss of market share.

Some Group I refiners say they can sell all their production and do not have concerns regarding the market turning and the material going long. Others are looking at upgrading facilities to produce Group II and Group III grades. A few believe the continuing need for Group l material for certain applications makes their production even more attractive for the longer term.

Group III prices have also moved upwards almost $100/t over last couple of weeks, showing that this sector is still selling out, and that demand from majors and additive manufacturers is particularly strong. Prices are now 1300 to 1325/t for 4 cSt material, whilst 6 cSt grades are 1320 to 1335/t, on an ex tank basis in Northwest Europe. Similar levels are reported in the Mediterranean. With demand running high, all avails of Group III material are being taken up by contracted buyers, whose requests for additional quantities in most cases cannot be accommodated.

Russian supplies of Group l base oils have become extremely scarce, with a huge number of enquiries hitting the Baltic and Black Sea traders who sell this material to the open market. This is perhaps the last bastion of spot availability for base oils within Europe, with all other mainland producers and resellers contracting, or at least allocating, their forward stocks to regular buyers.

Prices for these grades, SN 150 and SN 500, have been inflated to new highs this week, at $1210 to $1225/t for the lighter material. SN 500 has been hiked to $1265 to $1310/t, basis FOB sales ex Baltic loadports. Black Sea offers for cargoes of SN 150 delivered in northern Turkish ports such as Gebze have been lifted to $1275 to $1320/t, basis CFR. With Turkish buyers reeling, these levels are being declined at this moment, but other receivers outside the region are seriously looking to take large quantities of SN 150, and are willing to consider the appropriate FOB and CIF/CFR prices being offered.

SN 150 remains exceptionally rare in the Middle East Gulf; only one Iranian cargo of Group l base stocks was announced this week. This is a cargo of 2500 tons of mixed SN 500 and SN 650 grades to be loaded around mid-May ex BIK. The reported prices suggest that the cargo has been sold in a local currency other than dollars, and has been converted for reporting purposes. The prices were recorded as $1269/t for the SN 500 and $1254/t for the SN 650. This price is strange, since it appears to be lower than previous prices quoted for SN 500, around $1290/t last week.

U.A.E. supplies of SN 500 are still moving upwards in price, with offered levels this week above $1365/t, basis ex tank or FOB. These levels are very high compared to local Indian producers levels, so it is difficult to assess where this material might end up.

Saudi Arabian prices have ranged in line with European levels, although most of this production is sold to contracted buyers within the region, who, according to one receiver; are now being advised of price changes almost weekly. It has been reported that the total production of base oils in Saudi Arabia has been allocated for sale, and there are no spot sales of material available. Prices for Group l neutrals are $1220 to $1300/t, and bright stock is $1495 to $1550/t.

Many East African receivers depend on Middle East supplies. Prices for finished lubricants are noticeably moving upwards in Sudan, Tanzania and Kenya.

West African buyers have been trying to buy cargoes from almost any supply source willing to engage in conversation. Some are moving out of the base oil importation business altogether. But this does not mean that the region will denied base oil imports, since there are many contracted receivers in areas such as Ghana, Nigeria Senegal, and Angola who will continue to be served by their trading partners.

West African prices, however, are at an all-time high. Group l imports are $1345 to $1425/t for SN 150 and SN 500 respectively, with bright stock at $1600 to $1645/t, depending on quantity and cargo composition.

Fundamentals are relatively stable this week. Crude oil levels are maintained around $120 per barrel for Dated Brent, with WTI now showing around $106/bbl. These levels have come off recent highs, perhaps as a reaction to peace initiatives in Libya and other Middle East states, but perhaps more as products such as gas oil and fuel oil have passed their winter peaks. ICE gas oil front month is trading lower around the $1000/t mark, although there are daily spikes and troughs, as with other feed stocks important to base oil pricing such as vacuum gas oil.

Buyers believe that base oils have moved far enough in relation to crude and other petroleum products, and that we should see prices flatten in the next few weeks. Unfortunately, high demand and lower supply have taken over as the main drivers for prices of base oil.

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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