Europe-MidEast-Africa Base Oil Price Report

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New prices are filtering through to enquiries for spot business, but API Group I prices remain in a broad spread from $420 to $495 per metric ton basis FOB mainland Europe, with bright stock at $600 to $630/t. With very few new deals reported other than contracted domestic deliveries and export cargoes, the regions base oil market is peculiarly static.

There are some serious enquiries for large slugs of SN 500 and bright stock in the market, and these may yet yield a number of cargoes at new pricing levels. Producers who were contacted have been slow to respond to these calls, perhaps being a sign that there is not a lot of material available for prompt sale, due to the ongoing effects of turnarounds and cutbacks in production levels which have taken place over the last three months. Or perhaps they are waiting to get signals from the refinery to increase prices further.

Certainly the overall trend for clean petroleum products is upwards, and this will be seen in the feedstock values which are so important for base oils numbers. The August forward number for International Commodity Exchange gas oil 0.1 percent has broken through the $500/t level, and vacuum gas oil is trading at highs around $430/t. Crude levels have moved up again this week to around $60 per barrel for both Dated Brent and WTI, so with strength in the market there could be justification for increased prices on all base oils.

One anomaly in the base oil slate is the Group II/II+ grades, where there are few signs of any increase in prices. Suppliers appear to be content with prices in the range of $640 to $860/t, dependent on NOACK and viscosity. Should the levels for Group I grades start to encroach on these numbers, Group II prices could increase to maintain the differentials. Some $30 to $50/t has been mentioned by one supplier/distributor, but at the moment this party is remaining on stand-by, assessing the situation.

The Group III market is different from the above. The frantic activity in this sector may result from producers determined to establish market share, or perhaps it is the push from the refineries running flat out.

Certainly competition is rife for most Group III grades, particularly at the lighter end of the viscosity range. For example, some prices are being talked at below $800/t for prompt shipment/delivery, whilst the remainder of the market is around the range of $820 to $880/t basis ex tank. This scenario is appearing throughout the EMEA region and is not confined to mainland Europe or Middle East Gulf regions, where such activity would be contemplated.

Problems are reported in West Africa, Nigeria in particular, with cargoes on board vessels swinging on the hook awaiting discharge. Letters of credit not being in place, or not confirmed to sellers, are the major problem. Prices in the area have firmed slightly due to these circumstances, but to those buyers who can execute a clean sale and delivery then the range of $595 to $645/t for SN 150 and SN 500, and $665 to $695/t for bright stock, all basis CFR, are very much achievable.

North African producers are once again showing availabilities of Group I material, although some of these producers, such as Moroccos 125,000 t/year SAMIR and Egypts 105,000 t/y Alexandria Mineral Oils Co., prefer to sell their material by way of monthly, quarterly, or even annual tenders. Some work on the basis that when they have inventory at a particular level, they will engage in a tender to sell just that quantity as one or more cargoes. Prices for the latest tenders are stated to be close to Mediterranean numbers: $465/t for SN 150, $475/t for SN 500, both FOB, and where there is provision for bright stock, around $595/t.

The Middle East Gulf area is relatively price static, with little new business ether coming into or going out from the region. There is some evidence of Far East prices edging higher in this area (and the Indian subcontinent), with the result that a number of buyers have been shopping around for European prices with weaker freight levels, to see if they can be competitive. Evidence says that these prices are still not on a par with the local Iranian supply, although the gap is closing. Delivered product from Europe can be landed into the United Arab Emirates at around $545 to $560/t for neutrals, marginally above the new Iranian price levels for SN 500.

The scene is a confusing one, particularly for a spectator standing on the side lines of the base oil market. In the first place there is a range of Group I material, the solvent neutrals and bright stock, which is logically following a pricing trend set by component parts. Then comes the Group II/II+ slate standing still, marking time, taking account of what will happen to the mainstay part of the market before venturing to alter prices to take account of rising feedstock values and product type differentials. Finally, Group III products appear to be in the middle of a pricing battle, with producers and importers striving to retain current sales outlets, but coming under pressure due to oversupply of these grades in the present market.

A year ago the market could have absorbed the new production, but with demand for all lubricants falling by some 25 percent to 30 percent year-on-year, it has been impossible to alter or stop long term production plans for the newest grades which were already programmed to come on-stream. Hence the effect on Group III supply/demand is more marked than witnessed with Group I material which can be more readily controlled by producers to suit a contracted market.

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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