Europe-MidEast-Africa Base Oil Price Report

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The EMEA marketplace experienced a somewhat indifferent week, with some producers talking the market upwards re prices, but at the same time buyers content to stay away, still waiting to place their fourth quarter supplies.

The overall trend is still in favor of rising prices, but demand is still lackluster and sporadic, giving way to the thoughts that there are still some economic miles to cover yet, before the market returns to anything like 2007 levels on both volumes and prices.

For many reasons, feedstocks have had a turbulent ride over the past few days with wild demand swings in both directions, reflecting the uncertainty of the market as to where product pricing should be, relative to the crude movements of the last few weeks.

Surprisingly, crude values have not altered much from last week, after weekend spikes they have maintained their levels, with WTI at just over $79 per barrel, with Dated Brent appearing at about $76.60 per barrel.

With these radical movements in feedstock levels it has made justification for moving base oil levels all the more difficult, with low sulfur vacuum gas oil being priced at about $4 to $5 over Dated Brent, or at around $565 per metric ton on basis of CIF Northwest Europe.

VGO for example, saw prices some $40 lower at the end of last week. These levels will encourage producers to examine current realizations and refinery netbacks, but may still not be the catalysts to enact any major changes to the base oil portfolio of products.

Prices are largely unaltered from the range expressed last week with perhaps marginal increases at the top of the range where suppliers have tried to push prices up, but also where buyers have been reluctant to pay higher numbers than before.

Prices are judged to lie in the range of $795 to $845/t, basis FOB mainland European ports for Group I solvent neutrals, with SN 500 being most in demand, particularly in the Mediterranean and North African areas, hence appearing at the higher end of the range, and with bright stock staying relatively static at around $935 to $960/t.

Russian and Belarus production is being sold out of the usual Baltic load ports. Depending upon which refinery has produced the material, products are being seen at numbers between $765 and $800/t, basis FOB Baltic, for the two mainstay grades of SAE 10 (SN 150) and SAE 30 (SN 500).

These prices have moved up by some $20 to $30/t, due to the process by which these oils are purchased by way of tender, using previous months crude values as a yardstick, with reconciliation on final pricing happening at the end of the current month. Since a new month has begun, price movements would therefore be expected one way or the other, and with the relative strength of Urals crude prices, increases are the result.

There is some reasonably high quality material being shipped from the Naftan production in Belarus, and it can be expected that this material may command higher price levels than those indicated above. Ufa grades are still forthcoming, as well as some material from Omsk and Yaroslav. It must be stressed that there are wide ranging differences in the quality from the various refineries in this region, and to a large extent this ultimately dictates the prices which can be attached to the production.

In the Middle East Gulf region, Iranian prices appear to have arrested, and have remained at the previous levels of around $780 to $810/t basis FOB Iranian Middle East Gulf ports. This may be due to the uncertainty of energy subsidies being withdrawn by the Iranian government, although to what extent base oils will be affected is not clear as yet. If these prices have to rise, then it could render them uncompetitive against lower priced imports from Far East production. However, with ultimate control on raw material costings, any increase due to removal of subsidies, could be offset against lower feedstock values.

In West Africa very little appears to be moving at all, with few enquiries and even fewer cargoes being reported going into, or being planned for delivery into the region. The new round of prices which will apply to incoming cargoes, will perhaps limit imports, by placing an unaffordability tag on base oils.

Prices will now have to be in the area of $895 to $920/t for Group I neutrals, and bright stock coming in at $1,050/t. These levels may prevent some of the smaller importers from engaging in bringing material into the region, due to limits being imposed by local banks credit lines, and difficulty of having these local payment instruments confirmed by acceptable European banks.

South Africa continues to see demand holding up, and indeed there have been a number of base oil cargoes imported into this region during the last few weeks. Some of these are speciality grades such as white oils, but Group I, Group II, and Group III grades continue to come into the region from East and West.

South African prices are extremely difficult to establish for the whole region, due to the fragmented hinterland behind the production centers and the import points, but as a guide, local Group I prices are placed at the lower end of European export levels, plus a premium reflecting freight and handling.

Group II/II+ and Group III imports into Europe and environs have still to show any real increases in price levels, perhaps reflecting the lack of any significant of movement so far, from the primary producers in the U.S and Far East.

Although a number of these producing companies are reputedly looking at prices, they have yet to make any significant decisions as to possible increases. Thus Group II prices are now closer than ever to Group I levels in Europe, and this may provide a promotional effect for Group II grades.

Prices for imported Group II base oils are still being seen in the band of $875 to $995/t basis ex tank mainland Europe, and following last weeks news that Far East material could flow into this market, there have been unconfirmed reports that some of the majors are looking closely at using alternative supply points for these grades of base stocks.

With demand marking time, and the producers apparently content with current volumes and returns from base oils being sold, the market could almost be called balanced, and perhaps if crude and feedstock levels maintain themselves within the boundaries seemingly being set over the last few weeks, the EMEA base oil market could enter a period of stability, but for how long?

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.

U.S. posted paraffinic base oil prices, as reported each week in Lube Report from Jan. 2004 to the present, are now available in Excel format. See www.BaseOilPrices.com.

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