Europe-MidEast-Africa Base Oil Price Report


This week we have seen a surge in activity on the buying side, particularly for API Group I base oils, in Europe and Middle East. Replenishment of low inventories is causing some shortages and could even contribute to prices rising slightly or at least maintaining current levels in the short term.

Having run down stocks of base oils over the last few months, buyers are now being forced to refill inventories for the first quarter. Believing that the downward spiral on prices could be nearing an end, and with little material in storage, blenders all over the region have embarked on an enquiry and buying spree. In areas such as the Middle East Gulf* this has led to a shortage of SN 500, from Iranian producers in particular.

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Prices are a little firmer than at year end with SN 500 imported into the United Arab Emirates at $520 per metric ton, basis CFR/CIF, and the same or similar material imported into Kandla and Mumbai anchorage at $580/t. Given that freight rates have not moved upwards, we are certainly seeing slight firming in the market levels for these base oils. However, there are major changes regarding the purchasing of these base oils from the financial perspective. More on this below.

In mainland Europe all major producers are reporting enquiries for SN 150, SN 500 and bright stock for local and deep-sea receivers for prompt shipment, through January and February. Prices in Europe remain weaker, with FOB quotes for SN 150 and SN 500 between $430/t and $485/t from prime suppliers. Its almost as if the major producers are afraid of missing this selling window.

Even lower prices are being negotiated on lesser-specification material, but these grades tend to be available only from ports which reflect higher freight costs, for example from Baltic and Black Sea ports. Consequently prices for these products are being pushed lower and lower, down to levels between $340/t and $410/t FOB.

The odd-ball grade in this picture is bright stock, which, having maintained its own private high pricing levels over the past six months, is narrowing the gap with the solvent neutral grades. Bright stock is being offered at the low end of published prices, with very keen freight ideas, which could mean that FOB levels are lower than those reported. Prices for minimum 95 VI bright stock are now around $920/t, basis FOB mainland Europe. Combination grade cargoes are presently being loading for Nigeria and South Africa at these levels, and will be followed by other material in February.

Once inventories have been replenished, with demand slowing, feedstock prices weak, and crude values static, there is nothing toprevent further erosion of base oil prices, particularly if production continues at present levels. Producers have not cut back as yet, and with a void in the supply chain caused by our current demand spike, refinery inventories will have to be replenished over the next few months.

With fresh imports of Group II and Group III grades coming into mainland Europe, we are beginning to see these products compete on price with Group I. The latest prices for the main two grades of Group II base oils are between $550/t and $620/t FOB – keeping in mind that most of this material is being delivered to end users by barges, rail, or trucks, after being stored in third party tanks at a cost.

As noted above, with prices continuing to fall, the good news is that the financial exposure for sellers has been considerably reduced. But while the majority of large-cargo-size purchases were always made against the security of letters of credit, either issued by or confirmed by an acceptable bank, this method of payment now carries risk, in that some of the banks concerned cannot be relied upon to perform under the terms of the letters of credit.

Such are the risks involved that many sellers now insist on payment at sight against documents. This practice has encouraged buyers to squeeze prices to an even greater level, since these receivers are not enjoying the period of credit once extended to them.

Another pricing anomaly is occurring, where a couple of years ago in areas such as West Africa, the United Arab Emirates and India there were many importers in the business who bought and sold smaller base oil parcels. This propped up prices in their markets on the basis of divide and rule by the traders and producers. The circle is now turning, and larger importers are beginning to control these markets with the withdrawal of the minor entities due to the credit situation.

With the smaller traders and receivers falling by the wayside in some areas, the big players, with more financial muscle, are now buying the material once spread across the market. This gives buyers more purchasing power to import larger cargoes at lower prices, and inevitably pushes the value of base oil downwards.

*Middle East Gulf is the term used by global shippers and traders for the Persian Gulf/Arab Gulf.

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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