Europe has long been a base oil supplier for the world, exporting its own surpluses to Africa and the Middle East, India, the Americas and the Far East. But traffic to several of those regions has reportedly fallen off sharply the past few months. One industry source predicts that developments in China will determine if and when Europe resumes its traditional role.
Several industry sources have noted the recent decline in European exports. Shipments to South America and Africa continue at near normal levels, they say, but sales into North America and Asia have dropped drastically, except for internal transfers by multinational oil companies.
With the exception of the majors, normal trade from Europe into the Middle East, India and the Far East has virtually stopped, one marketer said. I havent seen any spot movements in the past month.
This source and others said the change seems to be the result of increases not only in European base oil prices, but also for freight costs from the region. While base oil prices in North America have risen steadily throughout 2004, prices in Europe were sticky until autumn, when crude costs soared to record levels around $55 per barrel. Since the end of September, European base oils have undergone multiple large hikes, observers said, rising more than prices in other regions during that period.
At the same time, freight costs from Europe also rose, pushed up by higher energy expenses and competing demand for transportation of chemicals. Base oil marketers in Russia and Iran reportedly took advantage of the chance to undercut European suppliers on price and found new customers in India and the Far East.
While prices for European base oil exports will likely fall if crude oil costs ease, one base oil marketer said Russian and Iranian suppliers have gained an advantage now that customers have adapted to their stocks. This marketer said it may take big demand from China for European exports to return to past levels.
Now, even if prices out of Europe fall, the Iranians and Russians could undercut them to protect market share, he said. So it depends on what happens in the Far East, primarily in China. Right now, imports to China are way down, apparently because of inflation. If their demand comes back – thats the big question mark.
Posted prices for paraffinic base oils in the United States were unchanged this week. The price of crude on the New York Mercantile Exchange closed yesterday at $49.04 per barrel, 20 cents higher than a week earlier.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.