Europe-MidEast-Africa Base Oil Price Report

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The oil markets are again in turmoil after the World Bank announced doubts as to economic stability throughout the world. The energy companies and oil prices have responded by turning sharply downwards, even with the continued political problems in Iran, and the oil installation attacks in Nigeria.

Crude levels have come off around $6 per barrel, from the highs seen last week and are now steady, all products have echoing those lower numbers. Dated Brent is currently standing at just above $66, whilst WTI is around a dollar higher at $67.40. Coming closer to home to product which has a direct effect on base oil prices, LSVGO has distanced itself from the top levels of last week and has come off by some $40 to currently trade at about $475 per metric ton.

The outlook for 0.1 percent gas oil forward pricing on ICE is still bullish, but nowhere as strong in sentiment as seen over the last two weeks, with the forecast highs coming off gas oil, even through to December 2009.

Opening with these background comments this week is important for EMEA base oil sellers and buyers. These large swings in crude and product prices, whilst not having a direct daily, or even weekly effect on base oil in the region, will ultimately filter through to base stock numbers, and will be reflected in the trend for July deliveries. Sellers will be trying to push prices upwards, and buyers and receivers seeing falling product prices as weakness in the market, a sign that prices should stabilize or even drop.

Not surprisingly, base oil prices have continued to rise this week, since there is not a tremendous amount of material floating around in this market. With this relatively tight supply scenario, and the price hikes on crude and petroleum products over the last month or so, base oils probably deserve to continue to rise to reach comparative price levels with other refined material.

Prices are being seen in the ranges of $590 to $650/t for Group l solvent neutrals, and bright stock now commanding a premium over last weeks numbers at somewhere around $760 to $770/t, basis FOB mainland Europe. Again the range is narrowing, showing that there is consensus in the market, at least among producers and sellers who have elected to squeeze as much out of this market as they can on pricing. Bright stock in any quantity is now considered to be in short supply, and can even be described as scarce.

Strangely, even without demand, the region has become a sellers market with supply quantities being lower than in previous years, and with prices steadily moving upwards to the producers acceptable netback levels for the production of Group l base oils.

Group ll/ll+ and Group lll oils have kept a reasonably low profile when it comes to pricing, but the latest numbers seen for these grades have certainly moved up in line with those prices for Group l material. There have been talks of setting new selling levels for these grades for July onwards, which will certainly be marked higher than the last few weeks. The prices are showing for Group ll/ll+ in the range of $775 to $950/t, on a delivered basis, whilst Group lll levels are put at anything from $750 to $1,025/t, taking account of vis, and also depending upon where in EMEA this material is being delivered.

The good news for buyers is that there appears to be no shortage of Group ll and Group lll grades, with more production coming on-stream from new and existing units, these producers managing to fill all the gaps which may have been created by the downturn in the economic situation worldwide, and hence limitations on production of Group l oils.

Looking outside mainland Europe, the Middle East Gulf region is not particularly transparent at this juncture, with a great deal of emphasis being placed on imported Group ll and Group lll material coming from outside the immediate region. Whilst all prices in this area have risen from previous levels, there is not a lot of buying activity being reported.

The large quantity of Iranian Group l solvent neutrals mentioned a couple of weeks ago appears to have been confirmed, and having been assembled (if that is the correct expression), the cargo will sail at the end of June/ beginning July. This cargo was sold at lower prices which bear no resemblance to the market today, which is considered to be in the area of $630 to $650/t, basis FOB southern Iranian ports. The destination is still unknown.

Elsewhere in the same region, the final contract between Bahrain and Neste Oil has been signed for the go-ahead on a new plant in Bahrain to produce 400,000/t per year of very high quality base oils (See full article in this issue of Lube Report).

Faced with rising base oil costs and perhaps limitations to banking facilities, West Africa, and Nigeria in particular, has been exceptionally quiet. There are news reports that the Nigerian government may be looking to take the country out of exchange controls, by de-regulating and opening up the banking system to foreign bank investment which could solve some of the current problems incurred by importers and sellers into this market.

Prices in this area have moved up considerably, particularly with a large dependence on bright stock imports, where levels are now established at between $830 and $870/t, basis CFR, with Group l solvent neutrals showing in the range of $675 to $750/t.

The Russian availabilities continue to filter through to the Baltic load ports, but again at new price levels not seen for more than one year. The levels of $610 to $635/t are comparable to the lower end of the mainland European numbers, but availabilities are tight and there are few signs that a deluge of material will be forthcoming in the weeks to come.

Overall demand still low, production lower than previous years, along with cutbacks almost throughout all refiners in the region, availabilities tight, and prices continuing to rise. That is the EMEA base oil market this week, in a nutshell.

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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