Europe-MidEast-Africa Base Oil Price Report

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Its a really lean week for base oil business in the EMEA region, although as always there are strains of activity in some places.

Iran has probably drawn the most attention, with prices for API Group I heavy neutrals coming under renewed pressure from buyers in India and U.A.E. With few exports coming out of Iranian ports, numbers are being pushed down to levels approaching those seen in mainland Europe. Prices are estimated in the range of $725 to $755 per metric ton, basis FOB, with last weeks high of $775/t disappearing off the radar.

Other producers activity in this region has been very low-key, with few deliveries of anything other than contracted barrels coming from Saudi Arabian Red Sea refiners. With the end-of-year European loaded cargoes still on the water, new CFR and CIF prices have yet to evolve from this area.

European activity could be described as approaching zero, with only one piece of Baltic business actively negotiated in the last few days. Prices for Russian exports appear to have decreased again and, depending on quality, are now ranging between $615 and $655/t basis Baltic Sea loading. This confirms reports circulating 10 days ago of poorer quality material being touted at the lower end of these new levels.

Prices from mainstream producers are marginally preserved at previous levels with Group I solvent neutrals in the spread of $710 to $730/t for light neutrals, and a slightly higher platform for heavy neutrals at $725 to $755/t. All prices are basis FOB, mainland European ports. Bright stock prices are between $855 and $900/t, FOB.

One surprising feature has been the resurgence of crude levels from last week, with WTI showing the lead to break through the $79 per barrel level, whilst Dated Brent is following closely on the heels at about $77 per bbl. Given the situation last week with terror fears, these markets will normally seek protection from any uncertainty, hence a short term spike in crude oil numbers which may or may not be sustainable over the next few weeks. Feed stocks have also responded with notional hikes rather than actual traded levels. Vacuum gas oil is finding slight signs of renewed demand from the U.S. gasoline markets, but with little European activity.

Nearly all West African contacts are out of station until at least after the New Year. There have been some follow up activities in locations such as Mali, Cameroon and Angola for supplies of rerefined base oils (or attractively priced virgin material, which of course, can currently be sourced ex Russia). There have been no new announced price levels for Group I heavy neutrals and bright stock into this region.

Group II/II+ prices have remained under the duvet over the last few days, with little fresh news. Group III numbers have echoed this sentiment, and the pricing spread remains as published a week ago.

Crude and feed stock rises could nudge base oil prices back to a more positive sentiment, rather than the potentially erosive qualities seen in the market of late. However, with demand still not showing expected recovery rates in Europe and the Middle East Gulf, there is still a negative element pervading the base oil market. It could swing in either direction.

Looking forward to 2010, the predicted return to pre-2008 economic growth levels has still not occurred as forecast, for reasons that include the demise of institutions in U.A.E., political uncertainty in Iran, European industry and job market weaknesses, and overall a more guarded and less expansive attitude by banks and other commercial entities where caution has now become the new buzz word.

These factors, among others are not helping the base oil markets to reestablish themselves to former levels, even with new technological advances in lubrication which will show during the next few years. The impetus required must simply start with consumers of finished lubes buying more oil, more frequently, and then this practice should reverberate all the way back to the refinery gate.

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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