Europe-MidEast-Africa Base Oil Price Report

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Base oil markets throughout Europe, the Middle East and Africa are in a state of flux right now, with upward swings and movement on prices occurring every day.

All sellers have escalated their ex refinery and FOB prices to reflect the material costs of base oil production. Cognizance of rising feedstock levels has percolated through to lubricants much faster than previously witnessed.

Barrels of Dated Brent and WTI are both changing hands around $68, an increase of some $20 per bbl, or about 30 percent in value, over the past two months.

Prices of base oils have climbed to new levels, and the spread is narrowing. Numbers in mainland Europe now range from $550 to $610 per metric ton for API Group I solvent neutral grades, SN 150 through to SN 600, whilst bright stock has moved up to around $650 to $695/t, all basis FOB. Barrels at these prices are for July, and even August, delivery. The price ranges take account of parcel size and delivery type, whether by sea, barge or road transport.

With the staggering percentage increase in crude, feed stocks have naturally increased by similar margins, with International Commodity Exchange gas oil 0.1 percent currently trading at $550/t for the front month, and low sulfur vacuum gas oil showing gains to be priced around $465/t FOB Northwest Europe.

These levels suggest that base oil prices still have some way to go to reach comparable and acceptable netback levels to those of other clean petroleum products; there could be further increases of $50 to $70/t or more for Group I material, and even greater hikes for other base oils which appear to have lagged behind the Group I pricing momentum.

Only now are Group II/II+ and Group III base stocks starting to move upwards, due mainly to the time lag between their dispatch from manufacturing source to arrival in the marketplace.

Group II is now up to $750/t for light vis, and near $900/t for the heavier vis grades. These grades more and more reflect the pricing structure at the point of production rather than the market into which they are being introduced, a trend thats transparent when seeing barrels arriving from the Far East and the United States.

Strangely, Group III prices have not increased by the same percentage as Groups I and II, and are being offered in the range of $885 to $1,020/t, ex tank basis, in mainland Europe, South Africa, and Middle East Gulf areas.

Russian sellers and traders have reappeared with quantities of solvent neutrals available in the Baltic area, but at new levels which could make these grades uncompetitive against alternative prime production elsewhere in Europe. Prices are discussed around $540 to $575/t, depending on specification and viscosity. Most deals have still to be concluded at these numbers, but the reckoning is that these prices are achievable, if not this week, then next. Russian producers are keen to maximize their base oil opportunities, and with increased rail tariffs and the crude costs lagging a month behind, there are certainly further price movements to come from these sources.

Availability for Group I grades in Europe is tight from the mainstream producers. Both domestic and export contract businesses are soaking up the majority of production from the system, and with demand still much lower than last year, there has not yet been the temptation for producers to rack up production to former levels. This could also be a function of prices not fully reflecting feedstock levels, but all this could change over the summer period.

In the Middle East Gulf region, Saudi Arabian Group I prices have stabilized over the last few days, but will possibly rise again during the course of the next couple of weeks when new enquiries are received by Luberef (Saudi Aramco Lubricating Oil Refining Co.). Levels are at $530 to $575/t for SN 150 and SN 500, with bright stock production selling FOB at $650 to $685/t. These prices always seem a step ahead of European mainstream production, taking advantage of lower delivery costs to the main blenders in the area.

Elsewhere in the region there are unconfirmed reports of a large cargo of some 25,000 tons of mixed Group I grades being sold out of Iran at prices between $615 and $635/t FOB. The Iranian producers were heard to be looking for higher numbers for this material, around $625 to $635/t, but because of the quantities involved they were reportedly prepared to settle at the lower levels. With elections in Iran this week, there is an element of uncertainty in the country, hence this may be an insurance cargo, making certain that supplies are available in the short term should there be any political problems following the elections.

Mainland European prices have pushed up the numbers which will be arriving into West Africa, and two cargoes of mixed grades, neutrals and bright stock, are now on route to Nigeria along with contractual supplies to Ghana, Senegal and Cote DIvoire.

Prices for base oils going into Nigeria now must take on a new look, and with freight costs into that particular area never being the lowest, numbers will now be seen in the ranges of $640-670 pmt for the solvent neutral grades, and around $800 pmt for brightstock. All basis landed CFR into Nigeria.

Real demand for base oils has not shown any upswing in the Europe, Middle East, Africa market as yet, but this may be difficult to gauge purely from a pricing standpoint. With the concept of the market being cost driven, the supply/demand scenario becomes a little fuzzy, since availabilities of material are much lower than one year ago. The current decreased demand is utilizing most of the available supply, providing either a view of a balanced market, or one where there is scope for increased production to meet future demand.

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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