Europe-MidEast-Africa Base Oil Price Report

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The EMEA base oil market is soft due to low demand for most grades, and buyers expect even lower prices as the year end approaches, when producers traditionally want low stock inventory positions.

Producers also face rising crude and feedstock prices, squeezing margins to the limits. Dated Brent crude has touched levels above $116 per barrel this week, the highest since early September, and WTI in the U.S. has risen to around $96/bbl, narrowing the unusually large spread between the two marker crudes which has haunted the market for some months.

ICE gas oil closed at $884.50 per metric ton in front month trading on Monday, some $50/t above levels seen last week, and the highest since June.

While the base oil market does not generally respond immediately to crude and feedstock spikes and troughs, prices for raw materials utilised in the production of base oils are not falling and indeed are starting to increase in value.

There is also talk in the market that another producer of API Group I base oils in Northwest Europe, Petroplus, will cease production in the near future, firming future supply. (See related story.)

Base oil prices have still weakened over the last week depending on grade, availability, and willingness of sellers. Lighter Group I grades such as SN 150 are perceived as long, and local numbers for base oils delivered by truck, barge and rail have fallen dramatically, almost coming into line with the prices attached to bulk export cargoes.

SN 150 has decreased to around $1045 to $1080/t, whilst heavier grades such as SN 500/600 have only fallen by some $10 to $20/t from last weeks levels. These grades are now being offered at $1070 to $1100/t, and do not appear to be under pressure at that level. Last week some large discounting took place in a few deals, but this week there was only one seller willing to entertain such proposals. The remainder of the renegade suppliers reverted to pricing ideas in line with the ranges above.

Bright stock appears to be relatively short, and large parcels of this grade are increasingly difficult to find at levels which some publications have identified. Prices for this grade in quantities above 1000 tons are now $1350 to $1380/t.

These prices apply to FOB sales and offers for Group I base oils being sold ex mainstream European and North African producers.

Russian Baltic prices have been holding up, although not much business has been transacted. Distributors in the Baltic have squeezed every last drop of margin out of the system and cannot afford to lower prices further. Sellers hope buyers will understand and respond with a flood of enquiries. Current offers for SN 150 and SN 500 are between $1035 and $1070/t, same as last week, with the heavier SN 900 grades offered at a premium of some $20/t to the high end of the spread.

Black Sea activity is following the same route. CFR prices in the market reflect FOB levels around $1020 to $1040/t for supplies of Russian SN 150 and SN 500. Some Uzbek SN 100 is priced slightly higher due to better quality, around $1050/t FOB Ukrainian ports.

The Middle East Gulf regions are in the doldrums. Iranian exports still appear to be scarce due to a turnaround, coupled with extreme difficulties for Western and Far Eastern companies to transact business using Iranian banking documentation. This dreary picture does not appear to be hampering local UAE and other Gulf blending operations, where Saudi Arabian base oils and one large in-house cargo from a European major in the Mediterranean appear to have taken up any slack.

Prices for Group I base oils locally have held up against the European drift, and are quoted between $1100 and $1140/t for the range of solvent neutral grades, with bright stock, depending on source, between $1490 and $1530/t. Locals are still involved in exporting material to East Africa in bulk and by flexibags, loading this material within the FOB price ranges above.

Group II and Group III use in the Middle East Gulf areas is increasing, with the added benefit of local supplies of Group III base oils now flowing from the two new production units in Qatar and Bahrain. Far East producers of these grades have also been sending cargoes into these regions. There are, however, a number of large turnarounds booked for the first few months of 2012 in Korea and China, which may have a limiting effect on the availability of material for export.

Prices for Group II grades delivered into the Middle East Gulf range from $1235 to $1425/t, some $50/t less than can be realised for these grades in Europe.

Far Eastern producers are also targeting East Africa and South Africa with HVI base oils which exceed Group I on characteristics, but compete with Group I on price.

Group III prices in Europe remain robust, with levels in the mainland between 1365 and 1385/t for the 4 cSt grades and 1375 to 1410/t for 6 cSt.

West Africa remains active with a number of cargoes planned for arrival into Ghana and Nigeria prior to year end. Sources for these cargoes are widespread, with rumours of one or perhaps two parcels loading out of the U.S. Mainstream European producers in the Mediterranean are looking to supply some 12,000 tons of base oils in total, with Baltic suppliers and traders waiting – but perhaps not too much longer.

Prices remain in the same bands as last week, with mainstream European supplies arriving in West Africa at $1260 to $1285/t for the range of solvent neutrals, and between $1415 and $1425/t CFR.for bright stock. When supplies are finalised Baltic numbers will be some $40/t lower for the range of neutrals, even given the higher freight costs, with SN 900 being sold around $1300/t CFR.

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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