Europe-MidEast-Africa Base Oil Price Report

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It was another rather slow week for base oils, with most European players taking advantage of the holiday period, and those in the Middle East getting out of station and looking for cooler climes during the month of August.

One dramatic element which does appear to be unfolding is the distinct lack of non-contracted material in the European arena, with availabilities for Group I solvent neutrals and bright stock few and far between from many of the mainstream producers.

The market has become somewhat blurred to the extent that it becomes very difficult to assess price levels for material which does not exist, has not even been produced, and most certainly has not been bought and sold. Prices for base oils in the EMEA region are giving a bullish impression, but really only on a notional basis.

The Group I levels for this week are being put in the region of $715 to $775 per metric ton, basis FOB mainland European ports, for business which has already been contracted, but it must be stressed that this price range is once again extended due to the various types of parcels which are being transacted between buyers and sellers. For example, at one end of the scale is the large bulk supply going to deep-sea locations, and at the other is the supply of flexi bags, or even drummed supplies of base oils.

Bright stock remains in short supply, leading solvent neutral grades along the upward path, but this grade is also showing a tendency to escalate quickly to higher price levels and these numbers can now be set at between $950 and $1,000/t basis FOB. Perhaps this is because there are a limited number of large scale bright stock producers, who believe that they can call the tune regarding prices in such a market.

With a renewed vigor, crude levels have again been the talk of the market with highs being realized this week for both the two common marker crude oils, Dated Brent and WTI. These crudes have spiked at levels approaching $75 during the last few days, but are now falling back to levels of $72 for Dated Brent and $70.50 per barrel for WTI. These swings are due to global politics as much as they are attributed to supply and demand, hence the volatility in crude pricing which has been witnessed over the last few months..

These levels have figured strongly in the prices of products and feedstocks such as VGO, so there remains this continuous positive pricing impetus for all petroleum products and their derivatives, including base oil. Taking away the spikes and the troughs of the crude and products graph over the last six months, the overall trend line is obviously upwards, and it this line which base oil pricing has to follow, albeit perhaps lagging behind these daily product values by some weeks or even months.

Group II/II+ grades are increasing in both volume terms and acceptability in the European market with many more approvals being granted by OEMs and operators within EMEA. This segment of the base oil market is moving to longer term pricing models with contracts being negotiated between the major importers and these prices based on the ex tank levels these are being set in the range of $900/t for the lighter vis grades, to more than $1,040/t for the high vis products.

Completing the picture, Group III material has again seen some extraordinary pricing deals being done by importers of this material. Levels which can only be described as loss leaders have been reported in the Mediterranean region, at prices which would be set below Group I current numbers. There are separate independent buyers who are stating that they have been offered three Group III grades at prices below $750/t delivered ex tank.

With regular supplies of this material commanding prices in a spread between $900 and $1,150/t, this gesture would seem hard to figure out. However, trusting that these sales could be for approval blends, or performance testing, there could be some marketing logic in this reported occurrence.

Elsewhere in the region all is relatively quiet. The Iranian mega cargoes appear to have subsided, at least at the moment, and although production is being maintained at lower levels in Saudi Arabia, life and base oil business goes on as normal. The market is subdued in the GCC* states during the summer period, with production and blending schedules cut back to reflect the overall activity, but the region will start to build again in September.

Prices for Group I base oils in the Middle East Gulf region vary enormously, but in the southern Gulf ports numbers are marginally ahead of mainland Europe, and are established at the moment between $750 and $785/t for heavy and light neutrals basis FOB Iran.

West Africa has had no reported activity this week, but with many of the buyers presently in mainland Europe combining business with pleasure, there may be some activity in weeks to come after the various meetings with suppliers and traders. What will be interesting will be the new import prices which will be set during negotiations, these now being imagined to be in the ballpark of $850 to $900/t for solvent neutrals and perhaps as high as $1,100/t for bright stock, basis CFR West African ports.

However, these prices for West Africa, along with many which will be set after the vacation period, are very much dependent on the availability of base oils in the market. As mentioned earlier in this report, there are signs that many regular availabilities are drying up, and product may not be readily available, at least in the European market. If this is the case, the market could be facing a time of real lower supply and a high demand effect, which could inevitably take base oil prices to whole new levels.

* The Gulf Cooperation Council (GCC) includes Bahrain, Saudi Arabia, the sultanate of Oman, Kuwait, Qatar, and the United Arab Emirates.

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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