Europe-MidEast-Africa Base Oil Price Report

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A continuing round of price hikes has hit the European base oil market, and other EMEA regions are following this lead.

The scarcity of almost all base stocks is prompting many producers to throw offers at buyers which in some cases appear to be totally off the sheet. But buyers are queuing to lay hands on supplies and are willing to consider asking prices for premium-laden, index-linked supplies to be delivered well into May and even June.

Availability has been exacerbated by a number of events, including turnarounds at a refinery at Dunkerque and two other Northwest European refineries, a fire at Livorno, and other producers decisions during February and March, when realisations were unacceptable for base oils, to cut back on production levels. Normally this would be an opening for Russian exports, but these avails have also been affected negatively.

In the absence of published prices and with very little prompt spot business in Europe, the market sees wide-ranging prices for API Group I oils. These ranges will only narrow after full disclosure of offers and completed deals become common knowledge, and when the market reaches some form of stability.

Group l prices are $1245 to $1300/t for light solvent neutrals. Heavier grades such as SN 500 have been offered between $1275 and $1335/t where available, with bright stock at $1290 to $1360/t. Bright stock prices increased due to higher manufacturing costs; this grade is available from a number of sources, but the lack of other grades prevents combination cargoes. This may be one of the few times that heavy neutral and bright stock prices have crossed.

These price ranges refer to bulk cargoes shipped FOB by sea from major ports in mainland Europe and North Africa. Local prices in euros have increased by the same relative amounts.

Baltic & Black Sea
Russian Baltic supply for export is thin, with many traders looking to take Group I base oils to deep-sea locations where demand is building. Receivers in South and Central America and West Africa are looking for repeat cargoes from the Baltic — the last were delivered in December or January.

Prices for the small quantities of material which are available have escalated. At the end of last week numbers for a mixed cargo of some 6,000 tons were higher than the top of the mainland European market: $1365/t for SN 150 and SN 500. It is not clear whether this offer has been accepted, but more than one party was heard to be in negotiations with the sellers.

Traders believe that prices above levels quoted last week, around $1275/t, cannot be realistic. However distributors are paying higher numbers to Russian refineries to replace inventory, and this will dictate the selling levels out of the Baltic, whether linked to mainland European prices or not.

In the Black Sea a different scenario exists, with small quantities of Russian exports shunned by Turkish buyers who claim their finished lube prices cannot withstand the higher levels being offered. Prices such as $1295 to $1320/t basis CIF are reported, but blenders cannot absorb these prices without passing increases on, which requires time. The market has moved so quickly over the past couple of weeks that finished lubricant prices have not had time to respond in markets such as Turkey.

Turkish buyers are looking at Far East imports, but these carry higher import tariffs than European or Russian origin material. Group II options as substitutes are being evaluated, but choices are limited.

Middle East
The local Saudi Arabian market is reportedly in balance with rising prices, but peripheral users of this production such as Iraq and Jordan are having difficulty covering all demand. Prices have rise in line with European exports effective April 1. Levels are reported at $1275 to $1325/t for Group l solvent neutrals, with bright stock priced higher than in Europe, around $1365/t, all basis FOB or FCA.

Iranian export material is now sold ex UAE at new levels around $1130 to $1140/t basis FOB, with delivered prices in India climbing above $1175 for Group l neutrals. Little Iranian product is available, but some 4,000 tons of SN 500 along with 2,500 tons of SN 150 is available on an FOB basis. With prices in Europe climbing quickly, the base oil market in Middle East Gulf is lagging and taking some time to adjust. Perhaps the region is caught between a bullish European market and a more sedate Far Eastern scene which is only now starting to gain momentum.

Africa
East Africa is struggling to find suitable cover for all the demand along the coast, with receivers looking to Pakistan and rarer Indian cargoes to fill the void caused by the closing of the European and Russian arbitrage to these areas. Local prices reported at end of last week for containers arriving in Mombasa and Beira were $1360 to $1385/t for Group I. The material was said to be of Far East origin.

West Africa has been caught out by the steeply rising European and Russian Baltic FOB levels. In a situation akin to that in Turkey the local markets are unable to accommodate the large increments to Group l base oil prices. Material arriving now is some $300/t higher than material which arrived at the end of 2011. Finished lubricants prices cannot cope with these changes, and the risk of not having blend stocks available is looming for many receivers in West Africa, unless a buying program is started immediately.

Mainstream European Group I solvent neutrals arriving during April will be priced between $1335 and $1395/t, with bright stock at $1400 to $1450/t, basis CFR. There have been no reported cargoes this week, although Baltic and Mediterranean base oils are reportedly being worked for first half April loading.

Group II/III
The void in European Group l supply may be a gift to importers of Group II grades from both Far East and U.S. sources. Formulations which allow for the use of Group II oils as substitute blend stocks may be implemented without further delay. A number of larger blenders within Europe and the Middle East Gulf may shift to a more stable provision of Group II base oils.

Prices rose April 1, and further increases are expected as soon as mid month. European Group II levels are $1280 to $1325/t for light vis grades and $1370 to $1430/t for higher vis material. Middle East Gulf levels for light vis are $1230 to $1250/t, and $1330 to $1365/t for higher vis.

Group III prices have moved upwards 10/t in one suppliers case and 40/t from another importer. Prices are now 1410 to 1450/t for 4 cSt, whilst 6 cSt grades are 1455 to 1480/t, all basis ex tank sales.

Fundamental indicators remained relatively stable over the last two weeks. Dated Brent crude has traded between $122 and $126 per barrel over the last two weeks with few signs of breaking higher. ICE gas oil is trading on front month at $1024/t, off the highs of over $1050/t of some weeks ago.

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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