A very quiet week after the significant price hikes over the last two weeks, and with start ups in Spain, with Repsol back into production at Cartagena albeit perhaps only temporarily, and with Totals unit in Holland resuming production, availabilities should be easing.
However, no sooner have all the producers initiated their price increases, when the market slows and things start to change yet again.
Very little new business has come to light this week, and is there is the inevitable talk that base oil prices may have reached a temporary peak. Prices in mainland Europe are probably only $10 to $20 per ton higher for API Group I solvent neutral grades, due in the main to the lack of buying activity in the market, but fueled with the insistence of producers to get prices up from July 1st. There have been attempts to raise numbers further, but these attempts are being resisted and challenged by the few buyers in the market, who are not prepared to pay higher levels.
Prices are in much the same ranges as last week, $625 to $675/t for solvent neutrals, and bright stock is around $785 to $820/t. These prices are being seen as a result of enquiries and not on the basis of business concluded, and are mainly for prompt barrels for July lifting.
There is reluctance from some producers to offer or to disclose prices for August and forward, mainly due to the uncertainty in the market. Generally it is anticipated that base oils still have some way to go on the up side, to be able to rightly take their place alongside their petroleum product cousins, gas il and low sulphur vacuum gas oil, at least from a netback viewpoint.
With dated Brent showing at $62.30 and WTI at $63.90 per barrel, as of yesterday, there has been around an $8/barrel, or more than 10 percent downward swing from the stable crude pricing levels seen over the past few weeks.
Following that trend, feedstock prices have tumbled from the highs seen last week. Whether this trend continues as a result of poor global economic data filtering through to affect demand for crude and products alike, only time will tell, whilst with relative stability returning to Iran, and other hotspots being cooled, the downward spiral could continue.
Base oils in the EMEA region are not predicted to fall, sources have stated, but equally they do not see the price levels rising much above current numbers.
In the eastern zone, an Iranian refiner increased SN 150 prices by $70/t, and the premium quality SN500 is now being offered at $750 to $800/t, basis FOB southern Iranian ports, but this seller is now having difficulty in promoting these barrels.
As an adjunct to these price levels, nearby Indian producers have in some cases increased all base oil prices by more than $120/t, showing that perhaps prices were unrealistic in that area and an element of market readjustment has taken place.
South African base oil prices were posted higher at the beginning of July and increases of more than $100/t for Group I solvent neutral grades were seen from some suppliers. These prices did start from a low base. Understanding the reticence to move prices upwards gradually or evenly is not easy to fathom, and it would appear that in some areas such as South and East Africa, prices are deliberately left trailing to try to avoid imports of cheaper material from outside the region.
This policy seems short lived, since when the increases are applied, many blenders, traders and receivers refuse to buy at the new levels, until such times as their finished lubricants prices can be adjusted to reflect new raw material costs.
As with mainland Europe, West Africa has been quiet this week with only two known enquiries hitting the market for sizeable requirements. With the suspicion that prices just might have peaked, buyers in this area are not in a hurry to buy new cargoes, and will hang on to see where the market goes during the next couple of weeks. Notional prices are set at approximately the same levels as last week (although some freight rates have been seen to be weakening) between $725 and $760/t for solvent neutral grades, and bright stock in the band of $875 to $900/t, basis CFR.
Group II/II+ prices have continued their upward momentum, and cargoes of Group II material arriving into mainland Europe are being offered at prices which are around $30 to $50/t higher than in June. However, the differential between Group II and Group I base oils appears to be more blurred than ever before, and there has been a situation this week where Group II material has reportedly been offered below Group I numbers. This event is possibly a one-off, and the situation may be short lived, but nevertheless has proven that there is not a definitive gap between these two grades other than obvious quality issues.
Prices for the whole range of Group II/II+ base oils from all areas are still in the region of $795 to $975/t, on a delivered basis into mainland Europe.
Group III prices appear to be reasonable static, possibly due to the large influx of material being imported, combined with new production from within the EMEA boundaries. This is contributing to the supply slate, but demand is not expanding to allow further development of this sector of the market. Prices are in the range of $835 to $1,050/t, depending on the location of the material, ex tank.
Its a relatively quiet market, but a market which has come to a fork in the road. Prices can now either still move upwards, perhaps at a lesser rate than seen of late, or can recede, going back down in line with feedstock values and crude levels, or of course they could remain static at current rates.
Given the anomalies of the base oil market, most players, both buyers and sellers, feel that prices will continue to rise slightly from present numbers, and will certainly not recede at this particular time unless real downward pressure comes from further downswings in crude and feedstock values.
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.