The EMEA base oil market has not seen any new demand spikes, and base oil production in Europe, after the third quarter, is estimated to be down around 28 percent from the same period of 2007 – the most valid comparison, since 2008 saw sharp downward movements in production and off take, after the economic breakdown.
Crude is rubber balling yet again, with Dated Brent moving back up to $68.60 per barrel, leapfrogged by WTI, which is now around $71.50/bbl. This upward movement, however, has not pushed up product prices as was seen on previous occasions when crude performed in a similar manner. If anything, petroleum product prices and hence feedstock levels have fallen again, with low sulphur vacuum gas oil posted at around $480 per metric ton, some $40 off recent highs.
Sentiment is that all western inventories are high on all products and that it will take time to readjust between grades, taking account of current and future demand. ICE gas oil futures are exhibiting weakness throughout the next three months, a reversal from the outlook which was forecast a couple of months back.
Base oils will likely stay in the same pricing ballpark area as they are now without further stimulus from the demand side, or from netback realisation with feedstock price pressure. Levels are now assessed between $770 and $810/t for API Group I solvent neutral grades, basis mainland Europe and North Africa. Some prices at the lower end of the range have come under pressure in the domestic market, with some buyers being granted discounts from their previous price levels.
Bright stock is once again available in large quantities, and is being sold and talked at levels between $895 and $940/t, basis FOB.
The export market is quiet with no real demand for large cargoes of Group I material going eastwards. There are always enquiries for this material, however, and with Chinese holidays finishing in the next few days, there is considerable interest for Group I material to flow to Far East destinations to fill the gaps in the market which have been created by the growing predominance of Group II/II+ production in the that region.
This demand could of course be met from Middle East Gulf production, from Iran for example, where the freight element is considerably less than shipping from Europe. In the Middle East all is very quiet, with very little activity going on. Prices are flat, and levels are much the same as the last couple of weeks, with heavy neutrals coming in at $780 to $810/t basis FOB Iranian ports or even basis loading out of UAE.
The Indian market does not appear to have responded to the economic stimuli which were assumed to be forthcoming for the fourth quarter, and hence is not taking up any of the slack from Iranian production.
Quantities of bright stock continue to be imported into Iran, and new levels were heard this week at $1,125/t for one small cargo lot being offered.
West Africa sees at least one cargo of mixed grades of Group I base oils en route from Europe, and there are rumours of a further two cargoes being negotiated for Nigeria. Prices are reckoned to be in the area of $870 to $900/t for the solvent neutrals, with bright stock around $1,020 to $1,050/t.
There are some pockets of demand for lower quality base oils to be imported into some West African destinations, but these volumes are small, 1,000 to 1,500 tons per cargo. It is apparently more economic to export these grades from mainland Europe by container than to transport in bulk by sea. Part-cargo status to carry these small parcels is extremely difficult to find in this region. These parcels are being imported by blenders who in the past bought their supplies from importers and traders. Now that they are growing, their requirements justify independent direct purchasing from producers or from specialist traders who can handle this type of business.
Prices for these grades being imported CFR into West African container ports are marginally higher than bulk cargoes, at levels of $935 to $985/t for SN 150 and SN 500/600, and even lower viscosity index bright stock in heated containers can be landed at levels around $1,050 to $1,085/t.
In South Africa imports of Group II oils are still gaining in popularity, while production of Group I is being maintained and indeed bolstered by the parallel importing of quantities of Group III base oils, all going to produce the new formulations for gasoline and diesel engines in this region. Prices are stable at $785 to $825/t for solvent neutrals, but much higher than European levels for bright stock, at around $1,100/t.
There is little evidence of any change to Group II/II+ prices levels for imported grades, and these appear to be firm in the band of $845 to $975/t, basis delivered mainland Europe. Group III imported numbers remain in the same wide strata as last week, given the method of supply, combined with grade selection.
Availabilities, appearing to be more abundant in the EMEA base oil market over the last two weeks, could bring further pressure on producers to review their numbers.
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.