Europe-MidEast-Africa Base Oil Price Report

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On the one hand there would appear to be a strengthening of the market due to rising feedstock prices, and a perceived smattering of increased demand throughout the EMEA regions, but at the same time there are plenty of availabilities, and virtually no shortages of any material anywhere in the region. Hence, an impasse has evolved between the two sides of the market.

Producers and sellers are in a bullish mood, whilst buyers are predominantly scarce to find anywhere in the market. Higher prices are being pushed forward, and are being talked about by all at the refining levels, but certainly without any real buying response, these are just meaningless words and figures.

Where demand has shown its presence it has been met with a barrage of price offers from sellers which are in some cases $50 higher than last weeks reported levels, which are being shunned by buyers immediately.

The market is playing the old game of watch, wait, and then see what happens over the next few days, if not weeks. Most European buyers have sufficient inventory to be able to work this gamble, some even anticipating price reductions in some cases. This outlook is perhaps more in hope than belief, but nevertheless these measures will prevent prices from moving upwards rapidly in the short term.

Prices for this week are being assessed at around the same levels as last week, but now with producer pressure on the lower end of the range, they are in the band of $785 to $810 per metric ton for Group I solvent neutral grades, basis mainland Europe and North Africa, bright stock following suit at same levels as last week, at $895 to $945/t basis FOB.

Although prices are being offered at higher levels, it would be imprudent to assume these as the new basis for sales of base oils until at least some business has been transacted at, or approaching, these new numbers.

Crude levels have rallied again over the last few days, but today have slightly retracted, and are now established at just over $74 for WTI with Dated Brent being seen at around $71.60/bbl. These levels are significantly above last week, and as normal have affected product, and hence feedstock prices in a positive manner. Low sulfur vacuum gas oil is now back up over the $500/t price levels, and this feedstock is being vigorously traded at International Commodity Exchange Brent plus around $4.40/bbl, showing positive strength in the short term.

With overall sentiment forecasting higher levels for crude, perhaps as much as up to $79 for Dated Brent during the first quarter of 2010 and ICE gas oil futures showing positive figures over the next six months, base oil producers have every right to be looking for higher numbers and better returns in netback terms.

The extent to which producers can ask, and then actually realise future returns remains to be seen, but the direction is upwards.

A quantity of Iranian SN 500 was heard to be loaded ex UAE at a level of around $860/t, although this cargo has not been confirmed regarding quantity or dates as yet. This would possibly mean that Iranian FOB prices for SN 150 and SN 500/600 are moving upwards to replenish this inventory, but no reports have been seen to suggest that this has in fact taken place.

With Indian exports showing large upward swings versus same period last year, and UAE returning to importing more and more base oils, the traditional sales outlets for Iranian Group I would appear to be fully intact, and perhaps starting to make the climb back to previous levels seen in late 2007. This also reflected in the quantities of Saudi Arabian base oils from Yanbu which are once again making their way into the GCC* countries, which all but abandoned importing base oil about a year ago.

Africa has been exceptionally busy this week with many enquiries for base oils to be imported into various locations in the region. As well as the usual movements into Nigeria and Ghana, there have been small enquiries for other destinations such as Senegal and Cote DIvoire, along with container based imports being organized for Cameroon and Mauritania.

Prices for Group I neutrals being imported in bulk are assessed at around $875 to $920/t basis CFR Nigerian and Ghanaian ports, with other smaller bulk imports perhaps being sold at some $30 to $60/t higher depending upon shipping and port facilities. Bright stock is still being sold in the region of $1,000/t, with some discounting for regular, first class paying receivers.

Russia and Belorus have once again opened the doors to exports, and the normal grades are flowing through the Baltic States for export to European and deep-sea destinations. FOB prices are being seen in the ranges of $755 to $790/t basis FOB Latvian ports for SAE 10 and SAE 30, or equivalent grades with similar viscosities. Heavier grades such as I-50 have not yet been seen, but will normally command a premium over the above prices by some $20 to $30/t, depending on source and specification.

There are many cited reasons why this material is starting to flow after some time, but given that nearly all Russian and Belorus refinery turnarounds and upgrading have been completed in the spring and summer months, the peak season for Russian base oil demand has passed, and there is of course a constant need to move these grades in parallel, along with other petroleum products from the regions.

Another reason could be that a not inconsequential part of the production of Russian finished lubricants is now moving to higher quality levels, with longer oil life, and longer drain periods than before. Perhaps Group II/II+ and Group III local production and imports are starting to play a larger part in the overall marketplace. Statistics are notoriously difficult to come by in this area, but this could be one of the reasons for the recommencement of Group I exports since they may be surplus to overall requirements.

Group II and Group III base oils have been somewhat low key when it comes to pricing, but on the imported front, both these base oil types have increased slightly in prices seen in Europe. Current levels for Group II oils are at $865 to $985/t, basis delivered mainland Europe, with Group III grades maintaining their levels at anything between $880 and $1,100/t, depending on all the usual factors. Group III grades will probably always incur a wide price spread due to quantities and the methods by which these grades are delivered to blenders all over the EMEA region.

A relatively static marketplace, waiting for something to take place, but with little or no clear direction as to what will happen to prices in the short and medium term, but the same market is also festooned with clear indicators which suggest that base oil prices are about to move upwards again.

* 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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