Gas oil is trading on the International Commodities Exchange close to the $440 per metric ton level, and with prices for API Group I SN 150 and SN 500 showing at levels of sub $400/t FOB, the disparity is clear. A comparison can even be drawn between the Northwest European price of low sulfur straight run fuel oil at about $275/t. Given these gas oil and fuel oil numbers, it is not hard to draw conclusions as to what might happen to base oils.
With Dated Brent showing stable at around $45 per barrel and WTI at $41, both relatively stable, this would suggest that feed stocks are not going to fall further at this time. Given other seasonal factors, such as extreme cold weather in the northern hemisphere, demand for these barrels remains high, with low inventories to be replenished.
On one hand, these base oil prices could instil some positive demand back into a lacklustre market which has been stagnating over the last few weeks, indeed months, with buyers only supplementing inventories to the basic minimum. On the other hand, from a producers point of view, there is every argument to produce more gas oil and fuel oil and cut production on base oils to a minimum.
If buyers see this as the bottom of the market, they may be tempted to buy all available stocks within the next couple of weeks, at levels which will not continue lower at this time. If production is cut, then we could end up with shortages of all base oil grades, with prices starting to move upwards. These are rhetorical questions and are not forecasts of what will, or will not, take place.
Conversely, Group II and Group III grades appear to have held on to existing price levels, perhaps an effect of these barrels being sold mainly under contract, with few spot sales being reported. Prices of $600 to $650/t for the two main grades of Group II products are still being indicated for delivered quantities.
Even bright stock has descended to new levels, heard today at a bid price FOB of around $760/t, FOB mainland Europe. This is substantially lower than last years high of $1,645/t. Unlike the solvent neutral grades, bright stock appears not to be too long in supply, but there are ample availabilities for larger parcels when the availabilities from the United States are taken into account. Bright stock of course is one of the main grades being planned for export to West Africa.
A number of cargoes are being worked for West Africa at this time, and buyers appeared to have woken up and are keen to make purchases. Prices now being quoted for delivery CIF/CFR are in the ranges of $520 to $550/t for Group I SN 150 and SN 500 and 600, and for bright stock around the $900/t mark.*
Middle East sources this week claim that prices, as elsewhere, have come under severe pressure, and sellers from Iran and Saudi Arabia are being asked to lower their numbers to bring their prices into line with Far Eastern and European barrels. As in Europe, there is a reticence to immediately respond in this way, due to feedstock levels being much higher then the revenue and return being achieved on base oils production.
With I.P. Week and all its attractions taking place in London over the next ten days or so, there may be some interesting views and comments on where this market is going, and perhaps even when any movements will take place.
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.
North African supply and demand tend to echo the European Mediterranean market with its prices for Group I material, but also now has new development projects, for example in Algeria, with Group II and Group III production for the future.
West Africa as a region continues to move slowly from under the old European colonial-satellite supply scene, with no apparent changes in production or development of base oils on the horizon.
South Africa, perhaps the most progressive area, has revamped refineries once operated by the majors, and continues to develop along with European and Far Eastern influences. East Africa is probably the anomaly; apart from the local healthy demand for base oils, it also serves as the springboard for base oil and finished lubricant supplies reaching the land-locked countries in the interior of the African continent.