Europe-MidEast-Africa Base Oil Price Report

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Could prices in the base oil market be on the turn? There have been reports this week of producers around the region maintaining and even trying to increase prices by some $30 or $40 per metric ton for certain base oil grades.

European mainland sellers are adamantly stating that they will not sell out to really low offers in light of pending turnarounds which are planned by four or five major producers for the next five or six weeks. Sellers have decided that enough is enough, and that prices below $400/t basis FOB for API Group I mainline grades are no longer acceptable, given the potential or probable shortfall of production in the near future.

Some refiners have suggested that they have considered extending their turnaround periods for base oil trains, but this is easier said than done, since bottlenecking problems could arise. Petrogals production should be back up this week, so this should help fill in for any demand from other Iberian and Mediterranean stoppages.

However, there would appear to be always one seller somewhere in the market pleading inventory problems or selling lower quality material, who goes below what is being seen as acceptable selling levels. This has the effect of keeping the market at current levels, which appear to have reached some form of stability. At least the sweeping cuts in prices which have been evidenced over the past three to four months have halted.

Group I neutral prices are being seen at anything from $345 to $420/t, basis FOB European, Baltic, or Black Sea ports, as usual depending on quality, quantity and terms of sale. There seem to be plenty of stocks of SN 150 and SN 500 material around in the main areas, with respectable quantities of bright stock readily available at prices around $600/t, or just above.

There are rumours of large export volumes of around 30,000 t per month planned from one or two of the established Russian refineries, but there are various discussions regarding the pricing of these grades, which at the moment seem to creating an impasse to making the business actually happen. The Russian producers/exporters are looking for prices above feedstock values, which would yield levels in the range of $430 to $450/t, basis CPT Baltic terminals, which realistically is unachievable at this particular time for these grades of base oils. It is also difficult to envisage where such a quantity could be placed, given demand as it stands today. Perhaps by the time the exporters get their act into gear, these numbers will fit the scenario.

With prices for low sulphur vacuum gas oil extremely firm at around $343/t, and International Commodity Exchange gas oil at $382/t for front month March, it is certainly on the cards that all producers will be trying their hardest to move prices into more positive territory, and to get them out of the doldrums, but the problem still exists that the overall supply is still, at this point in time, outstripping demand.

Crude movements remain puzzling amid OPEC threats to cut production, but Dated Brent and WTI are at $45 per barrel and $47 per barrel respectively. The latter having been some $5 lower than DB last week, it has now overtaken DB in value.

Group II and Group III prices remain hidden behind their non-traded hedge, and with direct sales from producer/supplier to end user this part of the market is not so prone to price shift as Group I. Assessing the prices of Group II and II+ to have remained in the range of $675 to $750/t delivered, we might see a temptation to try to move these numbers upwards, but equally, whilst this type of base oil does not move down on price as Group I, with incoming new market moves, it is also difficult to move the prices upwards.

In the Middle East Gulf area prices are firming a little with less material being available. Iranian supplies are being offered at $485 to $495/t FOB, $20 or $30/t higher than one month ago, with demand slightly increasing into the Asian subcontinental markets.

United Arab Emirate and Indian buyers are again looking to take Russian material out of the Black Sea, but quantities and grade breakdown have not yet been confirmed for these cargoes. Prices for these grades have been at the low end of the spectrum, between $330 to $350/t FOB northern Black Sea ports, but with poorer quality all round. But with the Ukrainian refinery, Kremenchuk, still on extended turnaround/shutdown, there does not seem to be the same availabilities in this area as before.

West Africa sees the usual contracted cargoes going into Ivory Coast, Senegal, Ghana, and Angola with a number of enquiries for base oils for Nigeria. How real these enquiries are will only be proven after letters of credit are issued and/or confirmed by the buyers. CFR prices landed into Nigeria are being seen around $525/t for heavy neutrals, and $730/t for bright stock.

These enquiries appear to have all been issued at the same time, perhaps because of low inventories with the local blenders, or perhaps to establish positions within the market, after a government declaration to deregulate the Nigerian petroleum product market for imports. This has happened after the realisation that the limited refining capacity within the country can never keep up with future demand.

Summarizing, on the one hand the regions base oil market has bullish suppliers who are long in product stocks with expectations of higher price levels, and on the other hand there are bearish buyers with lower demand levels than normal, expecting low prices. A most interesting scenario.

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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