Europe-MidEast-Africa Base Oil Price Report

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Even with crude and feedstock prices showing weakness, base oil prices in EMEA continue to rise.

Dated Brent and WTI have retreated again this week; the former is listed around $108.80 per barrel and the latter at $95.50. These decreases represent a drop of around 20 percent from recent highs, and base oil buyers are protesting. Other petroleum products have dropped in value dramatically. ICE gas oil traded around $900 per ton for front month, and vacuum gas oil was $790 to $810/t at the end of last week.

Base oil producers say base oil prices are still catching up with crude and feed stocks. At the same time they are hanging their hats on the high demand and tight availability throughout the EMEA regions. The market is critically short of API Group I material.

Buyers are starting to display caution when looking at purchasing replenishment stocks ahead of the summer downturn, when supplies of base oil traditionally decline due to holidays, maintenance and monsoons. Some buyers are electing to take smaller lots in flexi-bags, which although initially more expensive, may prove to be the right gamble should base oil prices start to come off.

Prices have risen this week by $20 to $60/t. The market is still exceptionally short, and only those receivers desperately requiring material are willing to pay the higher numbers. Some believe prices will start to come off highs during the next couple of months.

Group I solvent neutrals this week are $1355 to $1405/t, with SN 500/600 showing at $1385 to $1425/t, reflecting a $60/t increase in one case. One of the three or four suppliers with product to offer said they were continuing to push up prices now, anticipating prices will start to fall over the summer.

Strangely, bright stock offers have not moved upwards substantially, but are maintained between $1555 and $1600/t. All prices are quoted on the basis of FOB sales for bulk cargoes ex mainland refineries in Europe and North Africa.

Russian barrels are extremely difficult to lay hands on, with no avails of SN 500 in any large quantity. One trader has moved some 10,000-plus tons of combined grades to Venezuela from the Baltic, a trading route not seen previously. Mexican buyers are also showing interest in Russian and Belarus grades, but may have missed the boat at this time due to the lack of material. Prices are higher, with FOB levels around $1345 to $1395/t for SN 150 and SN 500, with SN 900 and SN 1200 offered at $1445 to $1475/t.

Black Sea supplies of Russian base oil appear to have hit the buffers, with a number of cargoes of light neutrals offered for loading out of Aqaba in Jordan, destined for receivers in the Gebze-Istanbul range in Turkey. One major trader in Europe has been trying to offer light Group II grades into Turkey as a stop-gap measure, possibly until sources of SN 150 from Russian suppliers can be reestablished. This exercise of supplying Group II base oils has been successful in the past, but only when there was a glut of this type of material in the market. It is difficult to see why Turkish buyers would pay $60 to $80/t additional for Group II material over SN 150 coming out of Saudi Arabia, given of course that this supply source will continue.

European Group II prices have been increased by Korean and U.S. suppliers. With FOB Far East levels, plus freight indicating CIF numbers around $1465 to $1520/t for 150N and $1555 to $1600/t for 500N delivered into Europe, these prices line up against reported selling levels ex tank in the Mediterranean and Northwest Europe.

Group III levels are now established at 1335 to 1350/t for 4 cSt and 1365 to 1380/t for 6 cSt material. Group III remains very short, but with rumours of early production from Qatar and the scheduled start-up in Bahrain, additional supplies will be welcomed – unless these new sources flood the market.

The Middle East Gulf is reporting an increase in the availability of SN 500 from UAE sources, which can only mean that Iranian base oils are being exported into UAE for re-export. The Indian Ocean cross trades have diminished to a large extent, with a number of Indian buyers switching to base oils produced and purchased locally. One cargo of some 5,000 tons of SN 500 has been earmarked for Malaysia, but the arbitrage does not appear to be open for this trade, with FOB UAE prices around $1410/t.

East and South Africa have been quiet this week. West Africa is waiting for things to change, but unfortunately the only change in prices has been upwards. In Ghana, Togo and Nigeria, Group I solvent neutrals SN 150, SN 300 and SN 500/600 are between $1445 and $1525/t, with bright stock levied around $1720 to $1755/t.

These prices will be difficult for the region. With credit lines stretched to the breaking point for many receivers in West Africa, it means that the strong get stronger, and the weak get out of the market. Some receivers have been requesting smaller cargoes, but this drives the freight upwards, making the CFR landed value of the material higher still. Cooperative buying has been tried but many majors and traders selling into these areas will only load for one receiver, such are the complexities of combining cargo lots.

The important issue for European prices is where sellers can find receivers to accept current FOB plus freight levels. These buyers are becoming rarer, and the new price levels ban any movement of material to the Far East. The Middle East Gulf is going into the summer season, with a general slowdown in industrial and automotive demand. Large new Chinese plants are coming on stream, offering Group II/II+ material which will pave the way for less reliance on Group l.

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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