The EMEA marketplace is seeing price decreases for the first time since the momentous base oil adjustments following the global economic downturn in 2008.
Prices for API Group I base oils have at least stabilised according to most producers, and in some instances have been seen to fall by some $40 to $50 per metric ton. This is particularly the case for Russian exports, where prices have dipped to around $680 to $700/t for SAE 10 and SAE 30, basis FOB sales ex Baltic ports. These price cuts have been brought about by purchaser pressure, in response to growing stocks held in tanks in ports such as Liepaja and Riga.
There are more stocks being assembled for export within the distribution network in Russia and Belarus. With mainland European prices remaining steady, these grades, which traditionally tend to be lower quality, have been susceptible to price reductions. Russian and Belarus exports are not likely to be stored for long periods forming inventory for the sellers, but due to lack of extensive storage facilities, must be moved regulary. If quantities are not cleared through the system, a backlog effect can exert price and logistical pressure on the supply chain.
Prices in Northwest Europe and the Baltic are now placed into an extended range of $675 to $820/t, reflecting Russian numbers at the lower end. The upper levels reflect cargoes of SN 500 still commanding high prices from suppliers in the Mediterranean.
Bright stock is the one grade which has remained outside the frame from a pricing point of view, and maintains value at around $930 to $965/t, basis FOB European ports. Since bright stock is neither produced, nor used to any extent within Russia, it remains a product apart from other Russian and European Group I base oils.
In Iran, prices have been realigned to take account of lower demand from blenders and buyers in India and UAE, where large quantities of Far Eastern Group II have been dumped at prices comparable to the Group I oils being exported from Iran.
In Europe, imported Group II/II+ oils do not appear to have been subjected to price pressure, and have stayed relatively stable in the same pricing band as seen previously: $870 to $985/t, basis supply ex tank mainland Europe.
Group II base stocks continue to make progress against declining Group I production. With new European approvals imminent, it is anticipated that these oils will only move forward regarding acceptance and use by blenders throughout the EMEA region. These approvals and formulations will be widely accepted throughout the Middle East Gulf area and even into the sub-Saharan African regions.
Group III material has moved up a gear in terms of acceptability for blending in Europe and the Middle East Gulf regions, and with growing volumes, prices are being maintained in the band from $880 to $1,160/t, depending on viscosity, size of parcel, and delivery mode.
With crude and feedstock levels diminishing in value yet again – WTI was below $75 per barrel and dated Brent just above this level at $76 – base oil prices could falter, and certainly will not progress beyond current levels. Low sulphur vacuum gas oil as a primary feedstock continues to trade at weaker levels due to lack of gasoline uptake both in Europe and the U.S. With numbers being assessed at front month Brent plus $3.85, this shows a real weakness in the feedstock level, which could ultimately permeate through to base oils.
ICE gas oil, another indicator, is showing weakness in the short term, followed by imaginary strength over forward months two and three, giving rise to perception of a market which has reached its peak, and is now retracting.
The West African market has all but disappeared, particularly in Nigeria. With announcements that Kaduna refinery (the only source of locally produced base oils) will be back up running in the next month, perhaps there are political reasons behind the reluctance to allow the importation of further quantities of base oils and other petroleum products into the country. This situation will be clarified within the next few days, according to traders involved in the routine supply of base oils into this area.
West African prices are reckoned at levels which reflect European FOB numbers plus freight. With traders able to negotiate freight deals from a desperate European market, new prices could be in the range of $860 to $875/t CFR, for Group I solvent neutral grades, and bright stock is estimated to be in the region of $1,025/t, same basis. These prices are net of any additional fees applied to cover the eventuality of demurrage and detention which can be imposed on vessels effecting deliveries to this region.
The jury is out on which way base oils prices will evolve over the next few weeks, but with all the signs pointing to a bearish market for crude oil accompanied by petroleum products, there would appear to be weakness accompanied by few shortages in the supply chain. This will be exploited by all those on the purchasing side, whilst those from the refiners and producers camps may be hoping for some kind of reversal of this trend over the next few days.
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.