Europe-MidEast-Africa Base Oil Price Report


The base oil market never ceases to amaze. Throughout the whole of the EMEA region API Group I grades are now considered to be in short supply and there are areas where there are no availabilities for spot sales until September.
The market has been subjected to one or two key events which appear to have tipped the balance of supply from being long, and then balanced, to a market where buyers are now scratching around looking for cover for their next three months supplies.

Group I solvent neutral grades in all viscosity ranges moved up this week, in some cases by as much as $90 per metric ton for the more popular oils, having an effect of narrowing the range of prices to $610 to $675/t for solvent neutrals. Bright stock is selling around $775 to $800/t, all basis FOB mainland European ports.

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Normally at this time of year, inventories are allowed to become seasonally reduced. However this tradition has been abandoned, and the first signs that real demand is returning to the market are arriving every day. Buyers are seeing prices rising fast, and are struggling to find the oil to insure against paying higher numbers later in the third quarter. Producers and sellers meanwhile are accepting every opportunity to move their prices upwards.

One of the key events is that Russian material from the Baltic has all but dried up, putting pressure on neighbouring supplies which are trying to respond to the increased demand. Producers servicing this area are sold out of all grades of material for July, although there may be some respite in August as Lotos Oil S.A. in Poland may have the ability to up production of base oils with a new stream of feedstocks becoming available from the refinery. This may help ease the supply scene in the Baltic without Russian barrels in the market.

The Russian production did not just find its way into Northwest Europe, but in some instances was exported to Far East locations such as Indonesia and Taiwan. The FOB prices allowed this material to be sent to deep-sea destinations, but if the resurgence of Russian base oils happens in the third quarter of 2009, as is expected, then the new prices may not allow these grades to be marketed in the same manner, or to the same receivers.

Russian producers may find buyers closer to home who are more willing to utilise these grades if there is a price incentive of perhaps $50 to $70/t compared to domestic European Group I. If these products can be available on a proven, long-term contractual basis, then they may be used for blending with Group III material to meet new some of the new engine oil formulations.

Whether the present upswing in demand is sustainable, or a mere bubble, remains to be seen, but there has been no gradual demand creep back into the market.

With crude relatively stable in the band of $67 to $70 per barrel for Dated Brent, and WTI showing at $71/bbl, the price drive has been partly from increases in feedstock levels. Taking low sulphur vacuum gas oil as a primary contributor, this feed has climbed back to levels seen a couple of weeks ago, close to $400/t, basis Northwest Europe.

Gas oil quotations on the International Commodity Exchange are again showing strength for the fourth quarter of this year, well above $600/t. This strange concoction of increasing product prices and stable, even static, crude levels has given base oil producers the licence to increase prices for all base oils to what are being seen as acceptable trading levels.

Many producers have increased their contract prices from today, July 1, and are considering further increases for the month of August. Many EMEA blenders have reacted by hoisting finished lubricant prices to higher levels, this being the end of the contracted quarter, and half year, whilst seizing the opportunity of realigning prices for the third and fourth quarters of 2009. Within mainland Europe, all small deliveries of base oils by road tank wagons and barges have been increased for this month.

Group II prices continue to maintain the delta between themselves and Group I levels, with new numbers being talked in the range of $785 to $975/t on a delivered basis within mainland Europe.

Group III oils are making large inroads to the market as more and more buyers are responding to the influx of sellers. Prices for Group III vary tremendously from mainland Northwest Europe to the Middle East Gulf to South Africa, hence it is very difficult to place universal regional EMEA prices on this material. Prices in mainland Europe are put between $850 and $1,050/t, depending on viscosity and grade, basis ex tank.

The large cargo of mixed Group I base oils rumoured to be loaded from Iran has still not been ultimately confirmed either on loading or destination, although there have been rumours that Far East/Singapore might be the favourite area for speculation. Other material is now flowing from Iran as before the elections, but prices are substantially higher now, with levels being negotiated around $650 to $675/t FOB for SN 500 and 600.

All other delivered prices going into this region from outside, from Red Sea and Mediterranean producers, have moved upwards in price, and with the exception of Group II barrels, prices for solvent neutrals are seen in the ranges of $685 to $735/t, basis delivered CFR /CIF Middle East Gulf ports.

West Africa has awakened again this week with a number of enquiries for the usual mixed cargoes of Group I material, although there are unconfirmed reports that a cargo of Group II base oil was being negotiated for supply into the area by traders. This is an interesting development, not just from the supply of Group II into this area, but also from the angle that the material would be supplied by traders. This practice is certainly novel, since most supplies of Group II have been made either directly by producers or by appointed distributors.

Prices have gone to another stage for new supplies into Nigeria, between $720 and $750/t for solvent neutral grades, and bright stock is being sold between $850 and $900/t basis CFR.

Certain producers have hinted at increasing their Group I base oil capacity where there have been reductions in grade availability over the last year or so. This increase could take up the slack of any increase in demand which is being seen in the region, but the surge in demand being witnessed presently could also promote the arrival of Group II/II+ and Group III oils into the EMEA region.

Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in East Grinstead, U.K. Contact him directly at

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