After sagging over the past year, base oil exports out of Europe appear to have picked up the past couple months. Still, observers say the rebound has had little impact in the United States.
With surplus capacity that significantly exceeds its own needs, Europe has traditionally been the worlds biggest base oil exporting region – helping to fill shortfalls around the world. The volume of shipments dropped in 2004, however, as the continents production tailed off. As happened elsewhere, unusually high fuels prices encouraged refiners to shift feedstock from base oils to fuels, so the continent had less base oil to share.
But industry sources say base oil exports from Europe have increased over the past two months. Normally that would be good news for buyers in the United States, since European imports – or the prospect of them – have historically exerted downward pressure on prices here.
In this case, though, most of the cargoes out of Europe have been heading to Brazil and Nigeria.
One European trader suggested, however, that those markets are becoming somewhat saturated.
Brazil is still taking some cargoes, but not as much as in April, he said. There has also been a slowdown in volumes to Nigeria, partly because of the rainy season and partly because they seem to have built up quite a surplus.
Of course, lower demand in Brazil and Nigeria raises the question of whether European exports will head elsewhere. Still, the European trader suggested that U.S. buyers should not raise their hopes too high.
Crude and fuels prices [in Europe] have come down some, but they are still too high for [base oil] arbitrage [in the United States] to really make sense, he said. It all depends on what happens with crude prices, fuels and costs for feedstock. If they continue falling, youll see oil companies happily making base oils. And if we start getting long in Europe, then there will be pressure on the U.S. market.
Posted prices for paraffinic base oils in the United States were unchanged again the past week. The price of crude oil on the New York Mercantile Exchange closed yesterday at $49 per barrel, down $2.80 from a week earlier.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.