Europe-MidEast-Africa Base Oil Price Report


Disarray, arguments and disagreement are the flavours of the week. Producers are maintaining their bullish stance with price hikes, which some buyers consider out of order, given the current drift in crude and product prices.

Certain producers, who have been planning their increases by way of a number of tranche-like hikes, have come under fire from buyers who have refused to pay the new levels demanded by a large number of EMEA refiners. In the API Group I sector there have been increases in some cases of more than $80 per metric ton, on top of increases which went into effect at the beginning of July. Most producers have hoisted their numbers by $25 to $40/t this week, giving rise to expectations of further increases in the pipeline.

It is almost as if some producers are ignoring market trends, having been advised some while ago by their forecast analysts that crude and product prices were on an upward trend, and there was no halting this movement.

Ranges now seen are $680 to $725/t for solvent neutrals, with bright stock around $800 to $850/t, based on FOB lifting from mainland European ports. These prices are commensurate with crude levels last seen in 2007, at $85 to $90 per barrel. Perhaps buyers do have a reasonable point.

The problem, as always, is whilst ultimately there is a direct correlation between base oils and crude levels, this is not a daily direct trend relationship, since there are overlaps and delays from both sides of the equation. These can throw up some spurious reactions when prices for crude have gone downwards by some $10/t to hover around $60 per bbl for both Dated Brent and WTI, whilst at the same time base oil numbers have been climbing by large leaps and bounds over previous FOB and delivered prices.

Feedstock levels have fallen as a result of the crude implosion, but not to such an extent as the percentage drop in crude values. Low sulphur vacuum gas oil is currently trading around $325 to $330/t. ICE futures for the fourth quarter maintain the high forecast of over $500/t. This scenario lends strength to the argument that crude does not purely dictate the ultimate price of each product, and that base oils in particular had some catching up against the product slate to make their production attractive to refiners from a netback perspective.

This could suggest that as quickly as prices move upward, they may start to erode almost immediately, due to a collapse in demand which could be ignited by the latest large hikes, or by buyers digging their heels. This is the summer period when inventories are traditionally low, but this year are seen to be reasonably full, due to buyers anticipating base oil price rises and buying larger quantities during May and June to protect themselves. With most of the turnarounds completed, and the lube trains back in action, there could exist the possibility of rather a great deal of oil around with nowhere to go.

In the Middle East Gulf region, prices have spiralled upwards with Iranian heavy neutrals seen at levels of $800 to $820/t in some cases. The effect could be an open door for mainland European barrels to start competing with local Middle East Gulf supplies. However, doubts are now cast onto this arbitrage with the latest rises in Europe, and Red Sea production making it difficult once again to compete in the Middle East Gulf/Indian arena.

West Africa has gone completely quiet on all enquiries. Spikes in base oil prices will be short lived in this area, but even if prices dropped immediately, cargoes would not arrive into this area before the middle of August at the earliest.

Inventories are not large in West Africa, so replenishment will have to be planned in the next few weeks. This could generate a flurry of activity, tempered only by the high costs and lack of funding through local banks. Prices into West Africa, with current freights, will now be in the band of $795 to $820/t for SN 500/ 600, and bright stock as much as $930/t, basis CFR main ports.

Group II/II+ prices have reflected the overall market gains of $25 to $50/t. The eventual effect will be to pull price levels into the region of $900 to $1,000/t for these grades, with Group III sales in the $1,000-plus band.

There have been reports of Group III material being sold at extremely low prices, below Group I current numbers, in southern Europe, but the exact commercial details are not revealed, so this is not seen to be representative of the market at this time.

The base oil market is poised to go higher in price if suppliers and producers consider that they can sell their barrels without going long in supply. At the same time the buying community are reacting with their lack of enquiries and reluctance to take up contract commitments, pleading that the market is already too high and the trend must be reversed, before they will step in and replenish inventory and stocking levels. Messy, really, but the realityis a market adjusting to find its optimum level, with an uncertain and unstable background of crude oil and petroleum product downswings.

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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