Europe-MidEast-Africa Base Oil Price Report

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A week for reflections and resolutions, since many players in the base oils business are either in or en route to London for Institute of Petroleum Week, which of course rounds off on Thursday and Friday with the ICIS World Base Oils Conference.

Prices in Europe, and indeed other areas do not appear to have moved much in the past few days, perhaps reflecting the inactivity hinted at above, or perhaps showing that there is another general stand-off, with buyers and sellers remaining apart. Levels for API Group I SN 150 and SN 500 are still generally in the range of $375 up to $500 per metric ton, depending upon quality, quantity and FOB location. Brightstock has taken another small fall in price, but this may just be part of the adjustment of price relativity between all the Group I grades. Brightstock is available at between $725 and $810/t, basis FOB main European ports, but again dependent on cargo make-up and quantity.

Feedstock values have fallen back this week, and this may take some of the pressure off lower base oils levels. European gas oil has fallen to just above $405/t, with futures trading below $400/t levels, whilst VGO has remained slightly bullish, somewhat geared to gasoline demand in Europe and the United States. Crude wise, Dated Brent and West Texas Intermediate have dropped back, and are trading lower at levels around $40 and $35 per barrel, respectively.

Talks are of a number of refiners cutting back on base oil production, which is to be expected when demand is low, and prices were and are moving to levels below feedstock netback levels. This will ultimately limit availabilities throughout the region, but with inventory levels remaining high, this will take some time to percolate through the system.

There are also a large number of turnarounds in European, North African and East Mediterranean refineries taking place which had been planned for the first quarter of 2009, some of which will certainly affect some base oil production facilities. Producers may then have material options at restart to choose between bringing base oils back on to normal stream, or to cut back for a time to cater for falling or weak demand.

There does seem to be a noticeable growing impetus throughout the region in moving to Group II and beyond. Along with increased imports of material from the Far East and the U.S., there are more initial start ups being seen in the region with another producer indicating availabilities of Group II+ grades coming from Scandinavia after May 2009. Perhaps the transition time has arrived, with producers holding expectations of higher prices and margins from Group II, Group II+ and Group III grades as compared with traditional barrels of Group I. Thereby justifying the increased production versus relatively high feedstock costs.

Again, prices for Group II and Group III material have not materially changed, and have not moved lower in line with Group I sentiment. The two main Group II grades are still being delivered at prices in an estimated range of $625 to $775/t, determined by additional transportation costs and proximity of receivers to storage points. However, there have been rumours of aggressive pricing offers to compete with currently supplied Group I barrels, although this is largely uncorroborated information at this time.

Elsewhere in the region, there has been little reported activity, with some small enquiries coming into Iran and Middle East from receivers who have traditionally been dependent on Far East supplies. Base oil prices for Iranian Group I material in the Middle East Gulf* areas, are hovering at around $470/t FOB, or around $495 to $520/t, basis CIF/CFR West Coast Indian or UAE ports.

In West Africa, there have been cargoes arriving, but no news of any further negotiations on more to come. There have been some interesting smaller enquiries for Group I base oils to be delivered in flexibags to inland destinations within countries such as Mali and Niger. These are being coordinated by importers in Sierra Leone, Senegal and Ivory Coast, and this on-site experiment may be to counter or allay the high transport, storage and handling charges and costs of supplying in bulk through the traditional routes.

Next week should bring some interesting developments as many in the industry get back to their desks after the direct and indirect effects of International Petroleum Week, giving us a fuller and clearer picture of where base oil prices are heading.

*Middle East Gulf is the term used by global shippers and traders for the Persian Gulf/Arab Gulf.

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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