Europe-MidEast-Africa Base Oil Price Report

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Europes base oil market remained quiet this week. It was difficult to realise any changes in the pricing bands established in the various areas in the region from last week.

API Group I solvent neutrals are seen in the range of $430 to $465 per metric ton, basis FOB. One small change was that bright stock appeared to halt its rise from the low $600 mark, peaking at around $660/t at the end of last week, and appears now to have retracted back to the lower levels seen a few weeks ago. One small cargo lot was even being negotiated at numbers between $575 and $585/t basis FOB mainland European port.

Russian export grades of Group I base oils have gone short in the north, and supplies out of the Baltic region have all but dried up for this month. This could have a knock-on effect on suppliers in northwest Europe, where demand remains very weak. Although there are relatively ample supplies available for buyers, there is not a great deal of material waiting in-tank to be sold.

Planned turnarounds and lower production levels adopted by many refiners could be having a balancing effect on the supply/demand picture and could lead to equilibrium in the market. Feedstock and crude levels remained buoyant, with Dated Brent hovering around the $52 to $53 per barrel level, with WTI a little lower, knocking on $50/bbl. So there will not be any direct price cutting to stimulate whatever demand can be drained from the market, which has already been squeezed for any positive signs of upturn.

Over the last few weeks the prices of Group III material have been recorded at anything from $1,000/t upwards. These have been delivered prices, which can be very difficult to pinpoint in a large geographic area with hugely varying delivery costs. To reflect accuracy on these prices from now on, only from-the-tank prices will be quoted. To kick things off for this week, current levels for these grades are set at between $785 and $850/t basis ex-tank.

The opening of the new plant at Modrica in Serbia heralds a new source of highly refined hydrocracked base oils within the European region. Although this plant is primarily designed to serve the former Yugoslav republics/Balkan region with its 52,000 ton per year of base stocks, its effect will obviously be felt throughout the southern European and Mediterranean markets. The introduction of these grades (a full slate of five grades is being produced, from 3Cst to 8Cst) will have an interesting price effect on this area, and it remains to be seen exactly how aggressively these new products will be marketed.

Group II/II+ prices have been relatively stable, and have neither moved up with the Group I prices, due to Group II/II+ positive netbacks, nor have they shown any signs of weakening like the identical grades from the production centers in the United States and Far East. Group II grades are seen in the frame of $780 to $820/t, basis delivered.

There is talk in the Group II/II+ market that to achieve the desired penetration into Europe, the Middle East and indeed Africa, importers will have to bring prices more into line to compete with Group I material. This problem may be resolved if Group I producers feel that their netbacks are still not acceptable against feedstock value, and raise prices for Group l grades again. This is entirely possible, even with demand being low, since selling a little at a positive margin is better than selling a lot at a loss.

Iranian and Saudi Arabian producers have reportedly been supplying relatively large quantities of Group I base oils into the Middle East Gulf region. This may be a response to the low inventories of the last six months and also a sign of buyers perceiving that costs will rise in line with feedstock values. India has also been drawing large quantities of base oils from the Iranian pool. Strangely, prices have not moved significantly from the levels seen over the last few weeks, and are reported at around $490 to $530/t basis FOB Middle East Gulf, basically competing with material from the Far East which remains relatively low on price.

Completing the picture this week, the African continent has been exceptionally quiet, with nothing new hitting the wires over the last few days. The Engen refinery in South Africa will be coming back up again in the next couple of weeks, resuming normal base oil production. As predicted last week and the week before, the enquiries from Nigeria and Ghana are still being negotiated or processed, and notional delivered prices into the area are merely reflecting European FOB numbers plus freight costs. For example, SN 150 and SN 500 are being offered at anything from $590 to $660/t, and bright stock at $695 to $750/t, dependent on cargo size and payment terms.

Balanced through to weak would describe this current market, with neither buyers or producers rocking the boat on demand or prices. Some optimists say that the buying stand-off continues, but this scene has been playing for some time, and the reality is that producers are producing less, receivers and blenders are using less base oils, and end-users/consumers are not buying the same quantities of lubricants as they did previously.

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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