Europe-MidEast-Africa Base Oil Price Report

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The week saw very light trading activity, perhaps due to the plethora of holidays in close proximity to each other, which prompted many players to take advantage with extended breaks.

The result is that many prices remain largely unchanged throughout the EMEA regions. There have been some reports of marginal increases for material available for loading during May and June, but with most mainstream producers declaring no availability for any prompt spot deals or even the odd truckload of extra base oil to existing customers, the market through Europe to the Middle East Gulf, to South and West Africa, can only be described as short.

Buyers are stating that the market has reached a plateau, and that prices should be at worst static, and at best be reviewed downwards. Producers and suppliers have other ideas, and with the shortage of material it is difficult to argue the buyers case, irrespective of crude and feedstock prices.

Many are asking why base oils, particularly API Group I grades, have gone short. The demand factor cannot be ruled out but this is a small-size dimension when looking at the overall scene. Perhaps part of the explanation is that European refiners have not resumed Group I production to the levels seen prior to the cataclysmic downturn in global demand witnessed in second-half 2008. With lower quantities of base oil coming to the market, even a small uptake in demand could cause the market to go tight, and eventually, short.

Furthermore, with few alternative supply sources available such as the United States or Far East, where Group I supply has diminished greatly in favor of new breed base oils, the opportunities to tap such suppliers to plug shortages within the EMEA regions have disappeared. The market is experiencing a new phenomenon, which ultimately could call for an increase in production at existing base oil plants, or as has been mooted for areas within the Middle East Gulf, the construction of new plants to plug the gaps created by closures and developments in the Far East and the West.

Another important aspect has been the winnowing of EMEA production units during the past three years. There have been many plant closures, and little incremental volumes from those still maintaining Group I production.

Refiners and producers are also relatively content with the market as it stands today, since they have been able to increase netbacks and realizations for base oils to acceptable levels; so much so that base oil now is considered the most valuable petroleum product coming from the crude slate. Changed days indeed!

Some Group I prices remain in the ranges as per last week, with light solvent neutrals anywhere between $1,275 and $1,310 per metric ton, but with heavier grades such as SN 500/600 now moving upwards a little, even on sentiment, to between $1,325 and $1,365/t. Bright stock appears to remain in the same band as previously noted, perhaps edging up slightly at the low end of the range to $1,510 and $1,600/t. This is taking account of forward selling of this grade for supply contracts over the next three months. These prices are based on FOB sales, from mainland Europe and North African refineries.

Group II/II+ prices have shadowed the Group I levels and have remained at a premium where possible above those selling prices. Group II grades if anything are gauged to be more available than Group I material, and this has caused a number of European and Middle East Gulf blenders to consider shifting to Group II as a longer-term option.

Levels are maintained at between $1,330 and $1,365/t for the light-vis end of the product spectrum, with the higher-end material being levied at between $1,360 and $1,475/t, reflecting the high spec material within this grouping. Prices are on an ex-tank basis.

European Group III numbers are rising in line with raw material values, which are now filtering through the supply chain and finding their way into base stocks. Some customers have confirmed that they are to pay more for material delivered after May 1. While others have not yet received formal price change notifications, one large receiver pointed out that with holidays and short working weeks over the last half of April, there may still be changes in the pipeline which have yet to be advised. Prices are now between 1,310 and 1,340/t for supplies of 4 centiStoke base oil, with 6 cSt material coming ex tank at 1,325 to 1,350/t.

Russian Group I prices are extremely difficult to pinpoint at the moment, with rumors of traders paying large premia over mainstream European price levels, merely due to the fact that the material could be made available for May loading. However, others have stated that the supply situation is so tight that they do not know yet what quantities they can make available for prompt sales this month.

The Baltic region has been full of contradictions as to what is available, when the material can be loaded, and ultimately what the price for this material will be. Prices are estimated to lie in the following ranges (although some business may be transacted at a premium to these levels): SN 150 is in the range of $1,310 to $1,345/t, with SN 500 at $1,365 to $1,390/t. The high-vis SN 900 grade from Uzbek production is priced at $1,445 to $1,460/t, largely in response to a growing demand for this grade from receivers in West Africa.

The Black Sea area also has witnessed a wide variation in price quotes, and one aspect remains unclear. Reports are coming through regarding cargoes of SN 150 from Russia which have been agreed and sold, mostly to Turkish buyers, but these deals do not appear to materialize. That is perhaps due to supplies not finding their way out of the Russian refineries, or as one player commented, these cargoes are being diverted to other buyers in Middle East Gulf and India who are willing to pay more for prompt supplies.

One way or another, a degree of back trading appears to be taking place. Whether that is within Russia or between traders on the outside is not clear. Current prices for lots of 2,000 to 3,000 tons of Russian SN 150 are between $1,375 and $1,410/t basis CFR/CIF North Turkey range. These prices would yield FOB levels around $35 to $55/t less, depending on cargo size and loading port.

There have been no more reports of Iranian cargoes for export this week, but there are still offers for SN 500 from the United Arab Emirates flowing around the market. These are purposefully high on the basis that the material otherwise can and will be used by local UAE blenders who are facing supply constraints from European and Far East sources.

Offers for supplies out of UAE have been heard at $1,465/t, basis FOB. Some European and Russian barrels finding their way into this market are being landed at around $1,320 to $1,345/t for SN 150 and SN 500 respectively, although in one instance SN 150 was commanding a higher level than SN500. Demand for SN 150 still runs high within this region.

Other area producers such as the Saudi Arabian suppliers are unable to meet any further demand from this region, so the hole in the market caused by the Iranian cutbacks will need to be filled from alternative sources; this is where the growing demand and dependence on Group II grades is accelerating.

West Africa has been quiet over the past few weeks, with a couple of cargoes programmed for arrival during May. One or perhaps two cargoes are destined for Nigeria, whilst another will be delivered to Ghana within the next few weeks. Prices range widely since the Ghana supply is based on an escalation/de-escalation formula linked to published prices. One Nigerian cargo is from Baltic supply, and will have been loaded at lower prices than currently exist for that area.

It is estimated that the Russian/Uzbek material will land at around $1,420/t for SN 150, and $1,455/t for SN 500, with a quantity of SN 900 on board which will land at around $1,495/t, all basis CFR Apapa port.

Mainland European supplies out of the Mediterranean will now command higher prices than those from the Baltic loading ports, and are expected to be in the bands of $1,460 to $1,475/t in respect of SN 150, with SN 500 at between $1,480 and $1,495/t. Bright stock supplies will be in the ballpark of $1,650 and $1,685/t, basis CFR delivery.

With crude oil prices remaining firm at around $123 per barrel for Dated Brent, and WTI showing at $113/bbl, the pressure on base oil price levels is continuing. Feedstock values have increased marginally over last week, with International Commodity Exchange gas oil showing gains of some $25/t. As vacuum gas oil strengthens in line with gas oil levels, raw material costs continue to escalate for base oils.

Buyers are commenting that the increases which have taken place in recent weeks have more than compensated for the upward movements in feedstock values, and that base oil prices need to be reviewed downward, given the degree and level of competition in the market. These comments are somewhat tongue-in-cheek, since in a sellers market buyers sentiments and attitudes are possibly among the last considerations to be made.

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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