Europe-MidEast-Africa Base Oil Price Report

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The EMEA base oil market has suddenly come to life with many suppliers unable to meet regional enquiries. As usual, a number of factors simultaneously emerged to cause market demand to surge.

First, there appears to be a general topping up of inventory levels, since most buyers took advantage of the somewhat depressed year-end situation. Prices were driven down to levels which became untenable due to raw material costs for feedstocks. One of the main causes for the slide in EMEA prices was the discounting applied to Russian base oil exports through the Baltic and Black Sea termini.

The corollary is that Russian, Belarus, and Uzbek base oil prices have all been hiked from the unacceptable lows which rocked the market a month ago. The response has been a resurgence in demand.

The other driver is buyer awareness to a rising market. Many decided now is the best time to replace stocks, while prices are still relatively low, coupled with the forecast of higher numbers. Buyers are streaming to suppliers requesting offtake which has shortened the market to such an extent that most European mainstream suppliers are now indicating availabilities for March and April lifting.

This scenario also is strengthened by positive fundamentals including crude oil levels that have moved upwards by $9 per barrel from last weeks numbers to a new high around $118.50 per barrel for Dated Brent. Both WTI and Dated Brent have followed the same track. International Commodity Exchange gas oil has staged a dramatic rise in the face of severe cold weather throughout Europe, and now trades around $40 per metric ton higher at $988/t. Vacuum gas oil also rallied in value, and pricing also is stoked by demand on both sides of the Atlantic.

The overall effect has generated a degree of impetus into the base oil market causing European API Group l prices to move ahead by $25 to $50/t. Prices for some grades spiralled higher than others with SN 150 and SN 500 being in consistently high demand. Levels for the Group l solvent neutrals are now between $1065 to $1100/t, in respect of the lighter neutrals such as SN 100 and SN 150, with SN 500/600 now being sold at $1085 to $1125/t. Offers for forward purchases are higher than these spreads, with index linked numbers being quoted at $20/t over the high ends of whatever published ranges are in effect on bill of lading, or delivery date.

Bright stock has come back, and is between $1250 to $1310/t, depending on other grades being purchased or loaded concurrently.

Baltic/BlackSea
One aspect of the market not anticipated is the enormous problem caused by severe cold weather and freezing temperatures in the Baltic and Black Sea regions. One distributor announced that no further loading of base oils until at least the end of February due to temperatures of -30 celsius. This will cause havoc within the supply chain and may cause disruption to future supplies from these regions.

Additionally only ice-class vessels can be used in this area during winter months which can limit the number of options for shipment of base oils (were this possible in the first place!).

With little or no supplies of Russian Group l grades coming through the normal channels, buyers are switching and looking to mainland Europe for any alternatives, which in turn is driving demand for the limited availabilities from these refineries.

Prices this week for Baltic and Black Sea are somewhat meaningless. Prior to the weather problems, levels had advanced from last weeks ranges, with SN 150 being offered at $985/t and SN 500 at $995/t, all basis FOB Baltic installations. It is anticipated, according to a number of sources, that levels will now play catch-up with European mainland prices when operations return to normal.

Middle East Gulf
The Middle East Gulf region is business as usual. SN 150 and SN 500 are offered in cargo lots out of the southern Iranian ports at levels which have also bounced off the lows. Prices are quoted between $1055 to $1085/t FOB for the two grades above, with SN 650 being offered around $1035/t on same delivery basis.

With the certainty that Russian base oil will not intrude into the Middle East Gulf market, at least in the short term, popularity for the Iranian supplies may be re-established. Indian and United Arab Emirates buyers are opting for these supplies, since delivery schedule is much shorter.

Saudi Arabian prices have adjusted in line with Europe and Middle East Gulf levels, and are now some $40 to $50/t higher than last reported. Similarly East African sales from United Arab Emirates and the Red Sea have reflected new offer levels.

Africa
South Africa appears to be busy with demand reflecting seasonal upticks in the consumption of finished lubricants. There continues to be a number of enquiries from individual small traders and blenders who are looking to import European, U.S. and South American base oils into this region as alternative supplies to the local production. Prices are relatively higher than source areas, which may allow the import of Group l and Group ll into South Africa.

Prices for Group l solvent neutrals are now between $1175 to $1225/t, with bright stock at $1340 to $1385/t.

West Africa, as expected, has been first to seek replenishment cargoes for arrival into this region during March and April. A number of importers have reported difficulties in obtaining offers for requirements and are casting their nets further afield in the supply quest. Two independent players have commented that they are looking to the Far East for supplies of Group l base oils, as an option to sources from Europe or the U.S. One is considering importing Group ll grades as a substitute for the normal Group l material if the prices could yield comparable value. This is an interesting new concept for these regions, and may be one for the future.

Prices are difficult to determine, since increases are being applied to FOB and CFR offers every day, but one offer for mainstream European material is confirmed at levels between $1165 and $1180/t in respect of the neutrals, and $1395/t for 4,000 tons of bright stock along with the smaller quantities of SN 150 and SN 500. This refers to an offer, and is not confirmed.

Group II/III
Group ll European prices appear to be stable, although the possibility of these grades following the route of Group l is inevitable. Prices are still recorded at between $1155 to $1180/t for the lighter grades, with heavier vis material at $1240 to $1290/t. In the Middle East Gulf prices seem stable, but with Far Eastern suppliers coming back after the holidays, and the Group l market moving in Europe, suggestions are that prices will move upwards around $20 to $25/t over the next few weeks.

Group lll European levels remain as robust as ever, with a few sellers indicating that the timing is right to push for increases between now and the end of February. Most stated they are reviewing the European economic situation, taking exchange rates and the demand picture into account. Until then, levels remain at between 1365 to 1390/t, for the 4 centiStoke material, with the 6 cSt grades between 1380 to 1425/t.

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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