Europe-MidEast-Africa Base Oil Price Report

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With many more participants in the market having returned from the holiday period, this week sees an awakening process for many base oil producers, who appear to be holding more stocks than anticipated at the end of last year. Many refiners are trying to hang on to published prices, while buyers are doing their utmost to move away from these levels and are constantly requesting fixed-price deals for particular cargoes with specific loading dates.

There are no signs of prices firming. Marker crudes are showing really strange numbers at the moment, spiking on seasonal highs last week, but now with Dated Brent showing below $45 per barrel, and WTI regressing to a level some $7 below Brent. Last week we saw refined product prices moving upwards, but of course at the end of the week and the beginning of this week we are seeing the corollary, and prices are coming back down.

Prices for API Group I grades largely remain between low $400s and mid $500s per metric ton, basis FOB. Some producers who are holding all three or four Group I grades (SN 150, SN 500 or 600 and bright stock) are trying to achieve a premium on FOB prices to offset the freight disadvantage of two-port loading. Whether this ambition is achieved or not remains to be seen, but certainly some major producers in the Mediterranean and Northwest Europe are thinking along these lines.

There have been talks by certain refiners to enter into auctions for products, but with demand being as it is at the moment, it is hard to see how this will benefit any of the parties involved. Buyers will be limited as to booking freight, and cannot offer their material firm to receivers until after the auction is decided. Producers could be left holding the cargo if the reserve price is not met. While this methodology has been tried by Egyptian and Moroccan sellers, it has not caught on elsewhere as yet.

Base oils cannot, and indeed, will not respond to pricing on a day-to-day basis, as can other refined petroleum products. Base stocks will ultimately produce a flattened-out value effect over a period of dramatic rises and falls by other products. Importantly, at the end of the day base oil prices will follow the overall trend, and at this time, the trend is certainly visibly downwards.

The prices of Group II and Group III material imported into India from the Far East over the past week have been established at around $680/t, basis CIF West Coast India, and not, as was being mooted, at levels closer to $550/t. This has important repercussions for material coming into India from Iran and Europe. There is also talk of financial problems in India which are preventing the usual flow of product into routine receivers.

Overall, demand is missing. Looking at the whole region from the Baltic in the north, through the Mediterranean, and down to the Middle East Gulf* and Africa, the demand factors are just not there. There are pockets of activity, such as West Africa, where major cargoes are planned for Ghana and Nigeria, with replenishment of supplies for Senegal and Ivory Coast, but there are very few standalone cargo movements which can show that there is a semblance of normality out there in the base oil arena.

The lack of demand is not showing in terms of recognised parties going missing, or withdrawing from the industry, but more and more we are seeing cutbacks on buying frequency, and reductions in the size of parcels of base oil going into inventory, which would seem to suggest that end users do not have the requirements as before. Or perhaps there are not so many end users as there were some time ago.

*Middle East Gulf is the term used by global shippers and traders for the Persian Gulf/Arab Gulf.

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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