Europe-MidEast-Africa Base Oil Price Report

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Its a relatively quiet week for the EMEA base oil scene due to I.P. Week and the ICIS World Base Oil Conference in London.

A number of participants in the market are choosing to wait until conference time to discuss face-to-face possibilities for new business. Most are agreed that with mounting raw material costs, sellers will be looking to establish prices at higher levels, whilst buyers will be stating their financial case for a market with sufficient material coverage and sluggish demand for most types of base oil.

As a backdrop to the week, crude and products have once again demonstrated continuing positive sentiment with Dated Brent touching $121 per barrel at end of week trading. This crude is now trading firmly around $120.50/bbl. WTI also shows strength around $103/bbl. ICE gas oil front month now figures above $1000 per metric ton, and this, together with continuing pressure to optimise gas oil output due to the demand caused by European cold weather, has pushed VGO as a feedstock to new highs.

Given this background, a number of buyers are trying to establish long-term or contracted supplies of base oils, particularly for European API Group I material. Many of these buyers are from destinations which are relatively novel to European supplies, perhaps a result of dwindling availability from other traditional sources.

Interestingly, some buyers have voiced concern over the long term availability of Group l base oils. Whilst there is recognition of the changing base oil supply scene, some say these moves are being ushered in too quickly for blenders to act efficiently. This is particularly the case in Third World regions which do not necessarily require the highest specifications for finished lube oils.

Prices being offered remain unaltered from last weeks numbers. Mainstream European Group l solvent neutrals are $1045 to $1125/t, with the light neutrals at the low end of the scale and the heavier SN 450-SN 700 at the upper end. Bright stock is still relatively long in the market, and bids for large slugs are being entertained by some of the suppliers. Sellers state they are not in a position where they are forced to sell at heavily discounted levels, but they will be flexible and may negotiate to move this grade out of storage. Bright stock prices range from $1190 to $1260/t.

These prices refer to bulk supplies ex mainland Europe and North African supply hubs.

Baltic and Black Sea
Russian Baltic supplies continue to gain a little more ground in terms of prices which buyers are prepared to pay, but most of the distributors in this region comment that this is only ground which should never have been lost. Levels for SN 150 and SN 500 ex Baltic terminals are now $995 to $1050/t, with suppliers offering at $20 to $30/t higher to try to pull this market back into line with other European prices.

It would appear that intermediate pricing from the refineries to the distributors have risen due to shortages caused by a number of logistical problems due to severe low temperatures, where railcars could not be loaded or unloaded. With delivery of base oil totally reliant on rail, the extreme cold has limited the ability of the transport system to perform.

Black Sea business has been brisk on the enquiry level, but physical cargo movements are still limited, and the whole infrastructure will only be reassembled when the product flow gets back to normal. Turkish buyers have been looking at Russian and Uzbek SN 150, which is offered at $1065 to $1085/t basis CIF.

There are also talks of high quality material flowing from Turkmenistan either into the Black Sea or the Baltic. These base oils would normally be exported into Iran for local use. Prices for these grades have yet to be established but a premium of $30 to $50/t over normal Russian export production is likely.

Middle East
In the Middle East Gulf areas prices are stable to firm. Group l avails are still not what local blenders in these regions would wish for, since European options still do not work into this area. Russian supplies which allow the arbitrage to work are not available at the moment, and Iranian SN 150, SN 500 and SN 650 continue to flow, but on a restricted basis.

Offers for Iranian material at the end of last week would yield netbacks around $1020/t for SN 500 and $1005/t for SN 150. A small quantity of bright stock has been offered on a delivered basis into the west coast of India at $1270/t CFR, but this deal had not been completed due to hesitation from the buying side. A similar cargo had also been offered into UAE around $1245/t CFR, but quality issues and price meant that this offer was declined.

Africa
Buying interest continues in South Africa with a number of small sales of material from UAE finding receivers in Durban. This material is being shipped in containers, and can compete with local prices. Container freight is around $80/t and FOB numbers are approaching $1140/t for SN 500, and around $20/t less for SN 150. These prices include all handling fees, flexi costs, and local transport charges at source.

The base oil scene is very quiet in West Africa this week. No further cargoes have been reported, although one selling party wants to conclude a large supply agreement for a number of cargoes from the Baltic over the next six months. These would be bound for the Nigerian market.

Prices into this region are difficult to estimate. Group l solvent neutrals levels should be $1150 to $1195/t, taking account Baltic Russian supply and/or mainstream European or U.S. sourcing. Bright stock may be $1290 to $1350/t, depending on where this product is loaded.

An enquiry for some 7,000 tons of mixed grade base oils has been circulated from a Ghanaian source that does not appear to form part of the local government tender contract. More information is being sought.

Group II/III
European activity in the Group II market seems set for a boost. A number of Far Eastern suppliers are looking to increase their share in what is being seen as the next large expansion area for Group II base oils. Prices continue to track Group l levels with the exception of the higher quality grades, which carry substantial premiums. The light grades are $1150 to $1185/t, whilst the higher vis oils are $1240 to $1275/t.

Middle East Gulf prices for the same range of Group II base oils are around $20 to $30/t lower than European ex tank levels, with some offers discounted to compete with Group l prices.

Group III tanks continue to fill throughout Europe with imports from new supply sources in the Middle East Gulf. Domestic production of Group III appears to be getting back to normal, but with prices which are maintained at almost constant levels: 1355 to 1380/t for 4 cSt material and 6 cSt selling ex tank for 1380 to 1420/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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