Europe-MidEast-Africa Base Oil Price Report

Share

Although this is a base oil report for the EMEA region, having dwelt longingly last week on the subject of disparity between crude oil and refined products, and the effect on base oil feedstocks, someone somewhere must have been listening, since marker crudes had posted lower during this week by as much as $4 per barrel to $5/bbl.

As this report goes to print, crude levels are now being seen to rise again, posting at close to $70 for Dated Brent and two dollars higher for WTI, at around $72/bbl. So back to where the market was last week? Not quite.

During the time in which crude dipped, product prices appeared to take cognizance of this movement and dropped in value. These levels have remained (at least until today) at these new lower points, which could signal that refined product prices were perhaps out of synch with crude levels?

Low sulfur vacuum gas oil came off the highs seen last week, and now returns to levels well below $500 per metric ton, and with sentiment weakening for International Commodity Exchange forward gas oil pricing, all three forward months showing levels closer to $550/t than $600/t, the outlook has changed considerably in the past few days for potential feedstock pricing reappraisals.

The reasons for these movements are many, and not for discussion here, but one end result could be that base oil prices may no longer have the feedstock price pressure being levied as before, and may stop rising at the incessant rates which have been witnessed over the past two months or so.

Although the increases applied to base oil prices have been relatively small on each occasion, the mere fact that there have been so many hikes by all suppliers over such a short period has had an overall effect of moving numbers up by some $150/t to $200/t for all base stocks.

Group I solvent neutrals in particular have been affected here in Europe, brightstock also having moved upwards by perhaps some $200/t to $250/t, and similar upward movements have also been witnessed with Group II/II+ imported grades.

Group I prices for solvent neutral grades are established now at levels between $770/t and $820/t, basis FOB all mainland European ports, for premium material, and whilst Russian exports have not really been in evidence over the last few months, there are patches of activity from Russian and Belarus refineries for export grades of Group I solvent neutral base oils from the Baltic region.

Prices for these grades are hard to assess at the moment, since the export process has just begun with the purchases from internal Russian traders or directly from a refinery. Auction values seen within the Belarus system would see these grades priced at around $665/t to $695/t (euro equivalent), basis FCA Novopolotsk, but with high rail tariffs and storage fees, these lubes should be priced at around $735/t to $775/t, basis FOB Baltic loading ports.

There is still not a great deal of base oil availability in the current market, and the whole EMEA scene could be called in short supply at this time. There are still turnarounds to come this month, with Petrogal in Leixoes going down for planned maintenance for a few weeks. These small outages can affect the market, and whilst demand appears to be improving during the past month, the production levels are nowhere near to what they were during 2007, and the beginning of 2008.

There should be more product becoming available in the Middle East Gulf region within the next few weeks. The Iranian exports will be planned to catch up after the recent downturn due to elections, holidays, and of course Ramadan. Saudi Arabian barrels will begin to flow normally again after the Holy Month in another 13 days time, and so the region will return to normal business as usual.

Prices will see levels approaching $785/t to $830/t FOB for heavy Group I neutrals being exported from the area, and also these levels will reflect the landed prices into UAE and other Middle East Gulf states.

Group II/II+ and Group III oils would appear to be growing in demand throughout the EMEA region, with Group III grades, and particularly the heavier vis type material, being utilized more and more for some of the new ACEA formulations in Europe.

Group II imports have seen significant rises, both in terms of the quantities being landed into Europe and other areas within the region, and also the prices for these grades. Prices for Group II are established in the range of $875/t to $1,080/t, basis delivered mainland Europe, whilst Group III grades remain largely unchanged from last week with anything from $950/t to $1,250/t, very much depending on where, how, and in what quantity these lubes are made available.

West Africa has seen a number of small cargoes being delivered to Senegal and Cote dIvoire, by majors supporting their own local blending facilities, and the Ghana tender continues to be supported. There has been little heard from within Nigeria, as to booking the next round of cargoes.

Perhaps grasping any straws possible to buy at lower prices, with the crude and product rumors, buyers may prefer to wait, but there are few European (and indeed U.S. or South American) suppliers who could service the demand for brightstock and heavy neutrals, should all traders and importers come back to the market to buy at the same time.

South Africa has seen some imported barrels of Group II material flowing into the main centers, and some Group III demand is being heard of locally in and around Durban. South Africa tends to echo the European markets, so there will be steady growth of the new breed of lubricants in this area, but of course without the quantities seen in other larger markets within the EMEA region. Prices here are estimated at between $775/t and $865/t for Group I neutrals, which vary enormously in quality, depending on source, which in turn reflects this large price spread.

Prices generally are still being talked up by producers, but there is real justifiable reticence to higher prices now being applied by buyers, who assume that the current netbacks being achieved by producers are more than acceptable given the new crude and product levels. Whether or not these downward movements are sustainable for any length of time is debatable, since crude and products could spike again at any time.

The truth of the matter is that producers will ignore any small downward fluctuation in feedstock levels, enjoying the respite of netback pressures to make better margins which may be required in the future production of their base oils.

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.

Related Topics

Base Oil Reports    Base Stocks    Market Topics    Other