Europe-MidEast-Africa Base Oil Price Report

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Throughout the EMEA base oil market, there appears to be an evolving need to evaluate the current base oil prices, which have eroded over the past few months, taking these products down to levels which are marginal at least and in some cases could result in loses.

Many sellers are hesitant to launch into the 2012 market without taking into account raw material costs which have been rising over the last few weeks. Crude oil has rebounded to around $111.00 per barrel in respect of Dated Brent, with WTI, which is the U.S. marker crude, breaking through the $102 per bbl mark. Another indicator, such as International Commodity Exchange gas oil in Europe, has moved up some $10 per metric ton since last week. Although trading days have been few, this increase to $924/t for front month at year end will have sent the rising feedstock cost message to the base oil refiners.

Producers contacted this week have been reluctant to speculate as to where the markets prices lie, and are playing a waiting game perhaps to see what buyers are prepared to pay, and if they can afford to raise prices to acceptable netback levels.

European API Group l prices are assessed at slightly higher levels than last week on the above basis, where some sellers have indicated prices at higher levels then those offered at the end of December, probing the market to gauge the temperament of the buying fraternity. The overall driving factor will be demand, and how much faltering economies within the EMEA regions can stimulate demand remains to be seen.

Levels for Group l light neutrals are between $1010 to $1055/t, and between $1020 to $1075/t for the heavier grades. These numbers are showing a slight gain at the lower ends of the bands, where those sellers who were ready to heavily discount are now trying to recoup pricing status. At the other end of the spectrum the prices are still firm, those being issued by producers who took early cognisance of rising raw material costs, and who were not prepared to sell at a loss.

Bright stock producers have improved selling levels based on steady demand for this grade into Egypt and West Africa. The spread for bright stock prices is now between $1220 to $1270/t for new offers for this grade.

All the above prices refer to FOB offers from European mainland and North African refineries.

Prices remain under pressure in the Baltic where there appears to be a division as to where FOB selling prices should lie. Some very aggressive selling has taken place just before year end for material which will be loaded in January, at levels for SN 150 and SN 500 sub $900/t. In other cases, sellers and distributors are unwilling to match these extremely low levels, and are maintaining offers around $40 to $50/t higher for sales of these products through January. In fact, one supplier has refused to make any offers on the basis that FOB prices are too low, and that material cannot be bought ex-refinery and shipped to FOB terminals allowing base stocks to be sold at the levels being requested by buyers.

This has opened up the spreads for Russian Baltic prices for SN 150 and SN 500 to take price levels to $880 to $960/t, with some indications now being given at levels $10 to $25/t higher than the top end of that pricing range for February loading. Not all the grades are available on a prompt basis, although some buyers have been inclined to take what is available in large quantities, and await further supplies of other grades at later dates.

The Black Sea trade for Russian and Uzbek material has been thin over the last few weeks due to alternative availabilities of base oils being made available into the Turkish market. Middle East production is finding its way into this region and can compete on price with Russian offers, whilst at the same time providing higher specification material. This may have prompted one major Russian supplier to sell at sub $900/t levels to purge stocks from this region.

With the West reviewing the options of sanctions against Iran, fewer and fewer reports have been heard of material being offered directly for export from Bandar Imam Khomeini or Bander Abbas. This area, including the Straits of Hormuz, is seen as vital to international trade to remain open, and all efforts are being made to politically solve the current problems. One offer for some 4kt of SN 500 was heard being offered into India, but the FOB price at around $1150/t, which seemed to be particularly high, was deemed too expensive in the light of offers for Russian material, based on the low priced Black Sea purchases.

Part of the Russian supply has also been offered into UAE, but sellers are keeping final destination information strictly confidential at this time, observers waiting for shipping fixtures to provide the clues.

Local production of Group l grades is once again being reviewed within the Middle East Gulf area, with a couple of large national blenders concerned that the shift to Group ll and Group lll will ultimately affect the availability of Group l grades in this region. There could be plans afoot to build new production facilities for Group l base oils in eastern parts of UAE, using feedstocks which could be available from local refinery sources. Feasibility studies are being carried out since dependence on European and Far East supplies for Group l grades cannot be guaranteed for the long term.

The East African market is another area which could benefit from such a facility in UAE, with shorter voyage times and lower freight costs. This market could provide high realisation rewards for alternative supplies of Group l material since reliance on European and Red Sea supplies is waning with high risk and high premia for transiting Somali waters. Prices for Group l grades such as SN 150 and SN 500/600 into East African ports are around $1130 to $1185/t, basis CFR / CIF, with bright stock being delivered at around $1385/t.

West Africa has been quiet over the holiday season with many buyers and traders still out of station, perhaps only returning during this week. Cargoes continue to arrive into Nigeria, and now with stocks high in this region it is anticipated that buying will calm down somewhat, and return to more normal levels where imported base oils would be around 25,000 to 30,000 tons per month, rather than the 70,000 tons imported during the last few weeks of 2011.

Prices for cargoes arriving are thought to be at the lowest levels, with new CFR offers anticipated to be some $25-$50/t higher than current. The spread of prices is still large given the variety of sources and specs of the various base oils being imported. Prices range from $1010 to $1085/t for all the solvent neutrals, with bright stock from Europe, Brazil and the U.S., covering a band between $1155 to $1375/t depending on quality and quantity shipped

Group ll prices remain unaltered throughout Europe and with no intimations of price changes from January the market is stable. Prices for Group ll base oils imported into Europe, although determined at source, closely follow the trends of Group l. Although these oils can carry a premia over Group l, they must still remain competitive and where Group l erosion was prolific over the last few months, the selling prices for Group ll grades have had to adjust.

Levels in Europe are around $1100 to $1130/t for supplies of light grades such as 150N, with heavier material selling from the tank at $1225 to $1250/t. European sales of these grades out of the tank are made in euro equivalent prices.

In the Middle East Gulf regions imported Group ll is selling at levels of $1085 to $1120/t CIF/CFR for the light end grades and $1155 to $1175/t for grades such as 500N.

Group lll maintains its bold presence in the base oil market throughout the whole of the EMEA region with European prices unchanged for the last few months. Demand is still strong for Group lll grades, and availability still tight, even with the new production from the Middle East Gulf starting to filter through to the markets. Deliveries for the two main Group llI grades, 4 cSt and 6 cSt, will resume this week after the holiday season ends.

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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