What a difference a week makes. Base oil pricing has splintered into regional variations; instead of clear movement across the European market, certain areas have pushed price levels up, whilst other areas have moderated or dropped from levels mentioned a week ago.
Russian supplies coming through to Baltic ports have been racked up in price, and one cargo of 1,000 tons of particularly high quality SN 150 (SAE 10) was heard to be offered at $440 per metric ton, basis DAF Latvian border. This would give an ex-tank FOB price of around $475/t, a much higher level than has been seen, even for high quality material which holds its own against API Group II-type production.
Generally Russian grades out of the Baltic have progressed upwards by another $20/t to $50/t, to levels more commensurate with mainline European pricing. This upward trend seems to form a wave, starting in the Baltic and breaking through Poland, Germany and into Benelux and France. Current prices are slightly up, especially at the low end of the range (perhaps more in hope than expectation) at $460 to $520/t basis FOB, for Group I solvent neutral grades.
In the contract domestic market there have been price increases applied from April 1, and more from May 1. However, temporary allowances or rebates have been granted to phase in the upward swing and test how much buyers will accept, since overall the demand factors are still not forthcoming. If anything the market is consuming less now than during the last quarter of 2008.
There is a fine line between retaining market share and maintaining acceptable netbacks in this business at the moment.
In the Mediterranean and North African production centres there is very little movement, either on prices or of material. There are a number of turnarounds in this area at the moment.
Prices from the Mediterranean are at the top of the range already, and there have been some suggestions that refiners were being optimistic to apply the increases of the last two weeks to the market. Prices for Group I grades are being set between $475 and $525/t, whilst prices for two grades of imported Group III in the area are being maintained at current levels of around $1,200/t basis delivered into the hinterland. There are unconfirmed reports that these levels could be reduced as an added incentive to move more volume.
Bright stock is back in demand in response to a number of enquiries from West Africa. Whilst many of these enquiries will never come to fruition, even those that do will take some time before completion, and so will not be a quick fix to any inventory problem looming for the main producers of this grade.
Bright stock prices have moved up slightly in response to the renewed interest, and are around $640 to $675/t, basis FOB, main ports Europe.
Nigerian buyers are again looking for heavy neutrals to take the place of bright stock, but with the Russian exports of the heaviest grades looking to increase in netback value, the advantages over bright stock of using SN 700 and above are receding fast. Prices for these grades being landed into Nigeria are $650 to $680/t basis CFR.
In the Middle East Gulf area the market has been subdued; only regular cargoes have been seen moving to the United Arab Emirates and west coast of India. Imported contracted cargoes have also been moving into Abu Dhabi and Jebel Ali, with prices still being held at levels which those producers in Europe can only dream of achieving locally.
Few large cargoes are moving into the Middle East Gulf, perhaps due to supplies of Group II from the Far East and to Iranian material which is competing on price terms with Group I base oils. Prices for Group I material in the areas are around $520 to $550/t FOB, with Group II selling at only marginally higher levels, particularly for spot sales.
Prices for Group II and II+ in Europe are maintaining levels of $790 to $850/t delivered. Whilst there is impetus in the market to make the move to these grades, there is also reticence due to the price differentials which blenders state do not equal the savings from using the higher quality material. This may change as new automotive standards come to the market, but it is certainly not happening at the moment.
South Africa and East Africa appear to be slowing down even further, perhaps due to the onset of the winter season. Demand for imported material has tailed off altogether, since local supplies have been brought into line to curtail exposure to losing market share.
Creating demand is the hope this week. Netbacks on base oils might be seen to improve a little with feedstocks coming a shade lower, and with Dated Brent and WTI trading places each side of $50 per barrel, again with no apparent demand. Prices are forecast to maintain their levels if no outside influence changes the current scenario. Until such change does occur, the market and this writer patiently wait and watch.
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.