After the last ten days of positive crude and product rises, the traditional base oil stand-off appears to be in progress with loud shouts of increasing prices from producers, but with little evidence of new deals to show that they mean business. Buyers are still able to purchase at marginally higher costs, far less than the percentage gains attributed to crude and feedstocks.
Many producers contacted this week say the EMEA region, like the rest of the world, is poised for upward movements in base oil numbers, but no one is exactly sure when and by how much.
Prices for API Group I solvent neutrals are $795 to $835 per metric ton, basis FOB mainland European ports. This shows a marginal upward swing at the lower end of the spread, but maintains the upper levels, perhaps reflecting a reticence to move prices until November. Bright stock maintains its position with numbers approaching $950/t FOB for substantial quantities, although some smaller lots have been sold as composite cargo material at lower levels, $920 to $935/t, perhaps being used to supplement other more profitable grades as part cargo.
Dated Brent is now posting at close to $77 per barrel, with WTI levelling out around $79.50 per barrel, both marker crudes coming off their highs of well over $80 at the end of last week. The hike, even followed by retrenchment, has moved feedstock prices higher compared to last week, with low sulphur vacuum gas oil at just under $570/t.
Even with crude showing a degree of weakness by coming off the new highs, base oil prices will still have scope to rise, given that feedstock values have reached a new plateau, and will ultimately produce a netback effect which may be unacceptable to some refiners at todays realisation levels.
Russian and Belarus material is moving from refineries to loading ports in the Baltic, but with the vagaries of the purchasing system in these regions, whereby prices are first established on the basis of previous month, with correction factors applied at the end of current month, prices are difficult to predict given the market movements witnessed of late. Therefore it may be early November before many of the batches of base oil can be finally priced into the market by local export traders.
Levels for the normal export grades from this region, SAE 10 and SAE 30, are marginally below European export prices, and are estimated to be in the region of $755 to $810/t, basis FOB Baltic ports. Final price depends on specifications with important parameters such as viscosity index, flash point and color being taken into account.
Base oils produced in the Mediterranean and North Africa are maintaining their scarcity profile. Few spot options are available to buyers looking to move material into Turkey and beyond. With much Saudi Arabian production going to contracted receivers, this region is not exactly flush with base oils at the moment. This applies particularly to the heavier neutrals from SN 350 through to SN 650.
Iranian Group I heavy neutrals are moving as Indian and U.A.E. demand picks up, to take these base oils at ever increasing price levels. One small cargo of SN 500 was reportedly sold at $873/t FOB Middle East Gulf, which reflects the high end of the scale for these grades. If these prices reflect the current market, then it may be possible to have prices around $900/t in the next few weeks.
Prices for Group II and Group III material in the same area are moving upwards, dictated by the production centers in the Far East. These grades are also continuing the threat to replace many of the Group I grades used by local blenders. This is due to prices of both types of material being relatively close, coupled with the economic advantages of using Group II material in certain blends. Prices for Group II arriving from Singapore are $875 to $910/t, basis CFR Middle East Gulf ports, but all parties are expecting these prices to rise dramatically in the next few days and weeks, by as much as $75 to $100/t.
Group II/II+ in Europe is following a similar trend; these imports will possibly rise by some $40 to $60/t initially, with scope for further increases depending on what happens to feedstocks, postings and freight levels in the next few weeks. Prices for these imported II/II+ grades are conservatively set between $875 and $995/t, basis ex tank European mainland, with Group III levels in the spread of $890 to $1,050/t.
West Africa reports the arrival of two large-sized cargoes into Nigeria, but there appear to have been some problems on arrival with one of these shipments, whether due to quality issues or financial irregularities is so far unclear. This could have a knock-on effect for future pricing of such deliveries, if demurrage and /or detention costs are to be incurred. Prices for new business are deemed to be in the region of $875 to $915/t, for solvent neutral Group I grades. Prices for bright stock, one of the staple grades for the region, are expected to rise near $1,040/t, all basis CFR West African ports.
There have been some smaller container-based transactions into West Africa, with prices at a necessary transportation premium to bulk supplies, in the order of $975 to $1,020/t for light and heavy solvent neutral grades. Bright stock has not been reported being delivered by these methods, but it is entirely feasible for the future, with landed prices currently estimated around $1,150/t.
South Africa maintains its busy summer schedule with demand streaming back to levels not seen for two years, with some local blenders looking for imported Group I material from Europe or the United States. East Africa follows this region closely, with imports from Europe and Far East supplementing locally produced base oils.
All through the EMEA region both producers and buyers are watching and waiting for the inevitable to happen. With ICE gas oil futures forging ahead last week to new highs over $670/t for front-month trading, sentiment is that base oils cannot sit on the fence for much longer without the sound principles of acceptable returns being applied to this product group. This simply means that base stock numbers are going higher.
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.