Europe-MidEast-Africa Base Oil Price Report

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There is talk within the EMEA base oil market that demand is increasing due to a number of inquiries and new offload schedules in negotiations for the first quarter of 2012.

European mainland blenders are starting to replenish inventories, and with export demand also apparently rising, the scene is set for base oil prices to rebound off what appears to have been the bottoming out during December and January. Most producers have complained that selling levels over the last two months have been unacceptable, and given perceived higher demand, the opportunity to move prices back up is not to be missed.

However, there are few completed deals. Many export sellers have offered prices to receivers based on historical numbers which are no longer attainable. Prices are being re-offered on a higher basis, accompanied by negotiations between buyers and sellers trying to find an acceptable midstream solution.

Fundamentals along with raw material costs remain relatively constant, or at least remain within a narrow range. Dated Brent crude oil is at $2 per barrel higher than last week at $110.40 per barrel against a background of Iranian disquiet. This could be offset by European demand if the European Union debt crisis is solved. International Commodity Exchange gas oil has reverted to levels posted two weeks ago, at $953 per metric ton, maintaining that feedstock and crude pricing appears to remain stable, within an acceptable range.

API Group l base oil prices, in respect of European production, are being offered at $20 to $30/t higher than last week, with some suppliers looking to push the boundaries further by targeting specific grades with higher numbers. Light solvent neutral are $1040 to $1065/t, with heavier neutrals at $1065 to $1085/t. Bright stock is in a weaker position at $1210 to $1255/t due to availability and lower demand.

All the above prices refer to FOB offers or salesfrom mainland European or North African refineries.

Baltic/Black Sea
Baltic prices for Russian, Belarus, and Uzbek base oils have rallied to levels that are more sustainable for supplying refineries as well as local distributors. Prices for the mainstay SN 150 and SN 500 grades are priced at $955 to $985/t. Sellers are trying to maintain a differential between Baltic and mainland European prices, given the slightly lower specifications and the higher freight rates required to move material from these locations.

Similarly Black Sea levels also have moved upwards to $25 to $40/t with demand from Turkish buyers starting keenly and then falling back as prices start to increase. Offers for cargoes of SN 150 and SN 500 are at $1010 to $1025/t, basis CIF Gebze and Izmir. These levels moved up to $40 to $50/t over the last two weeks. Buyers from further afield are still showing interest in Black Sea FOB offers with Indian and United Arab Emirates traders looking for material which could be slotted into the supply slate within those regions.

With prices moving upwards however, the arbitrage for deep-sea trade from Black Sea supply sources is rapidly closing since there are still competitive availabilities of SN 150, SN 500 and SN 650 coming out of Middle East Gulf from Iran for example.

Middle East Gulf
The mood in the Middle East Gulf market is mixed regarding base stocks. Some traders and blenders have decided to stock at high inventory levels because of the situation in Iran. Others are going on as normal and are not changing purchasing plans, at least in the short term.

As a result prices in Middle East Gulf have movedupwards. SN 500 is available at $1040 to $1065/t basis FOB, with quantities of SN 150 at around $10 to$15/t lower, and lower quality SN 650 at $995/t. With Indian receivers still enjoying the fruits of the discounted Black sea cargoes, buyers have been reticent to set their sights on prices higher than $1040 to $1050/t delivered, which now appears to be unrealistic.

Iranian bright stock has been pushed on to the export market at discounted levels mainly due to the lower quality of this product. Levels have been touted at $1230 to $1245/t, basis FOB Bander Imam Khomeini port, but with little interest from buyers in the region.

Saudi Arabian prices for Group l solvent neutrals have been lifted in line, or slightly below European mainland levels, although these prices did not descend to the absolute lows which were evidenced within the European mainland during December and early January. Levels for Group l solvent neutrals are now between $1020 to $1045/t, with bright stock selling slightly higher than European levels at around $1250/t, all basis FOB or FCA.

Africa
East Africa and South Africa continue to seek smaller quantities of lower cost Group l base oils from sources such as Baltic and United Aran Emirates, although these quantities are mostly being supplied in flexibags in containers. From South Africa there have been two inquiries floated for bulk supplies of Group l material to Europe, but with mounting FOB levels and the freight added, subsequent offers have been rendered uncompetitive.

Local prices in South Africa are established on the basis of Group l material delivered from refineries in Cape town and Durban, and are pitched at $1135 to $1180/t in respect of solvent neutrals and $1300/t for bright stock

West Africa appears to be extracting itself from the local problems in Nigeria and Cote dIvoire, with a number of base oil inquiries for the main import hubs of both Apapa and Tema.

Offers for import into West Africa are now being negotiated since most receivers are looking to replenish inventory during March. This follows year-end purchases which are still arriving into the region. In locations such as Nigeria there have been widespread delays in discharging cargoes of base oil and other petroleum products.

Prices are now being offered at $1085 to $1160/t in respect of Group l solvent neutrals with bright stock to Europe being priced at $1275 to $1320/t, all basis CFR western African ports. The wide range for neutrals is based on various sources, from Baltic to prime European supplies.

Group II/III
The Group ll European market is also seeing prices moving up, maintaining the relative value differential between these grades and the Group l portfolio. Group ll prices did not decrease to the same extent as Group l, perhaps due to product loyalty as a result of approval and formulation requirements.

Prices in respect of the lighter vis grades are at between $1155to $1165/t, with the heavier vis material being sold at $1240to $1275/t, on basis out of tank sales, located in either mainland Northwest Europe or the Mediterranean.

Group lll prices have remained intact with no news of any impending increases, other than small adjustments to some grades which are in particularly short supply. Importers and local producers have been at pains not to impose increases.

Prices however, remain in the bands as stated previously, with the two main grades represented as follows: 4 cSt grades are priced between 1365 and 1390/t, with the 6 cSt grades lying in a range between 1380 and 1425/t.

The EMEA base oil market appears to be gaining pace but how far producers and sellers will be allowed to dictate prices remains unclear. While rumors of increasing demand and a balanced market abound, the peripheral interference still suggests that there is some way to go to return to the heady days of the first half of 2011.

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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