Europe-MidEast-Africa Base Oil Price Report

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A muted base oil market this week, the EMEA region expected to witness a raft of increased base oil prices, but this does not appear to have occurred.

It could be that increases talked about last week may take time to filter through to the whole market. Perhaps because base oil prices are not posted in the EMEA region, increases have been applied but have not been validated until some oil has moved under the new terms.

Suppliers were reluctant to state whether they had completed increases on prices, but were nevertheless relieved to accept that numbers were holding up positively, and that price levels had not retracted in line with feedstock and crude levels.

The seesaw effect on crude continues with Dated Brent weakening slightly, back to just over $77 per barrel, and WTI hovering around the $79 level, but relatively close to the levels seen last week. All feedstock values have come off the top levels, and are up one and back the next, maintaining the same effect as crude.

Prices are in the same ballpark as last week with API Group I solvent neutrals holding in the range of $795 to $840 per metric ton, basis FOB mainland European ports. These prices reflect purchases of base oils yesterday, and any imminent increases could be included in this range. Bright stock is in the same boat, with no apparent movement as yet, in the band of $935 to $960/t, basis European production units.

Both producers and receivers commented that demand appears to have waned. The burst of activity seen over the last few weeks has not been sustained, perhaps suggesting that the economic upturn, so warmly greeted, has merely been a small uplift, with little support and a great deal of gravity. Certainly, published industrial output figures for Q3 within the EU have reflected this scenario, with true sustainable economic growth yet to be proven.

Russian material has been evidenced in the Baltic at prices around $755 to $775/t for SAE30 (SN 500) material in relatively large quantities of 3,000 to 6,000 tons, basis FOB Baltic ports. With no real demand to lift these quantities, these market prices could perhaps be trimmed by some $5 to $10/t to move this material more quickly.

Even in the Middle East Gulf area, a region rumoured to be recovering relatively quickly from the recession, base oil business seems to be on hold. Little or no activity is reported for export cargoes from Iran, and its suggested that prices might even have to drop to move inventory. Current levels for the mainstay Group I grades, SN 150 and SN 500/600, are $770 to $800/t basis FOB southern Iran ports. But with no enquiries and no cargo transactions, this market is very difficult to assess.

There are still contract sales being made and delivered into the region from North African, Red Sea and European producers, but even some of these supplies are being postponed by some buyers whose inventories of base oil are high enough to carry them through to the end of the year without replenishment.

In mainland Europe new imports of Group II/II+ grades from the U.S. have not been much in evidence either, suggesting that the hub storage facilities with satellite distribution have satisfied supply requirements for these grades. Prices have remained between $875 and $995/t, basis ex tank European mainland.

There are rumours of Far Eastern Group II production positioned to come into the European market, with suggestions of overproduction in the Far East. Inventories are high in some of the new production units in Taiwan and existing plants in Korea, and with the freight market being as it is today, these rumours are not inconceivable.

Given prices for Group II 150 and 500 between $740 and $810/t, basis FOB Far East locations, and freight around $65 to $100/t, it is not difficult to see the opportunities which may exist for these producers.

The one negative aspect to this scenario could be in setting up a permanent supply base, since when growth returns to the Far East, it is expected to come back strongly. These new plants may then have difficulty supplying local demand, whilst having set up marketing commitments in Europe in the interim. Certainly spot sales of Group II/II+ and of course Group III/III+ can be envisaged coming from these production centres in the short and medium term.

There might almost be a reverse arbitrage, where supplies of Group I material are shipped from Europe and Middle East to the Far East, with the return cargoes being made up of Group II/II+ and III material, going to Middle East Gulf, European, and indeed U.S. receivers and blenders. There are growing demands from Far East blenders for Group I material, particularly grades from Iran, India and Russia, and these requirements will only grow with the diminishing availability of Group I within Asia.

Group III prices are still in the wide range of $890 to $1,050/t in European storage facilities.

West Africa has been exceptionally quiet, while South Africa remains relatively buoyant. There are real enquiries for Group II and Group III material being brought into South Africa.

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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