The EMEA base oil market is exceptionally difficult to pin down even in terms of a range of prices this week, due to the large disparity in numbers being sought by producers for mainline and secondary production. There are signs, albeit small ones, that demand is starting to pick up. This is not a dramatic increase in activity, but could lead to base oils becoming relatively short in the EMEA area.
Some sellers have hiked their prices to new yearly highs, whilst others appear to be content to follow the market, and sell at levels which were first seen some four weeks ago. However, these producers have signaled that they intend to increase prices at the end of June for July liftings.
The lowest numbers for API Group I solvent neutrals are around $560 per metric ton FOB, but others are pitching their prices towards $640/t, and even above in one case. Bright stock has moved upwards to new groundbreaking levels at $695 to $745/t, but there is also a lack of bright stock material in the market, causing talk of even higher numbers to come.
During the last week, crude stabilized around $70 per barrel, for both Dated Brent and WTI, but as I write, both marker grades have taken off again, and are showing at $71 for DB and $72.50 for WTI. These levels are not demand driven; they may reflect the political problems in Iran, which are currently affecting the Middle East Gulf supply area. Feedstock levels are also showing gains, with International Commodity Exchange futures for gas oil October settlements at over $600/t.
The last time clean petroleum product prices were at todays heights was in 2008, when Group I SN 150 and heavy neutrals were priced in excess of $1,000/t basis FOB mainland Europe.
Russian producers have stated that their base stocks will be sold at what they consider realistic levels, given the prices of other petroleum products, and they are now pushing prices of $600/t and above for relatively small parcels of non-premium grades. There are few buyers at the moment, but this could change if supplies in the Baltic region and other parts of Northwest Europe diminish due to cutbacks in production by many of the mainstream producers.
Group II/II+ grades have all responded to increases applied by the offshore producers in the Far East and United States, and increases of $45 to $85/t are being applied to incoming barrels. The increases in Group I prices within mainland Europe and Middle East Gulf areas have awoken many blenders to the possibilities of moving to Group II/II+ with an overall saving to be made in the total blending process, with the new ACEA levels for example.
The Middle East Gulf area has seen turmoil this week after the Iranian elections, and reports of exports of base oils (and other petroleum products) have dried up from this region. There have been a large number of enquiries from blenders in U.A.E. and India for material to come from Thailand, Singapore, Saudi Arabia, and mainland Europe, but perhaps this is a case of backing up the supply chain in case there should be a longer term problem in Iran.
Prices have moved up throughout the African continent, notably in South Africa, where there always tends to be a premium over European levels. Prices for Group I grades are pitched at $650 to $700/t basis ex tank, whilst bright stock is selling in small quantities at close to $800/t.
There are a large number of enquiries coming from South Africa for Group II/II+ material, whilst Group III base oils have made considerable inroads over the past two to three years. Group III grades throughout the region have all increased in price, $765/t for the lower vis products and as high as $935/t for the 8 cSt material where available.
West Africa has seen many enquiries for mixed cargoes, but this region, in particular Nigeria, is facing the possibility of being left out of the market with the onset of higher prices. Lines of credit from local banks, and confirmed letters of credit coming from this area are difficult at the best of times, but when prices rise as they are doing now, only the financially fittest will remain in the game. Prices for imported SN 150 and SN 500/600 are now in the range of $700 to $760/t, basis CFR, and bright stock is following the trend at around $825/t.
One aspect of the base oil market which has not yet been addressed in this report is rerefined base oils in Europe. There have been many enquiries from all parts of the market for these grades. These oils are produced around 5 cSt viscosity, but carry the added benefit of a high viscosity index, being processed from many Group II- and Group III-based used oils.
Currently prices for the singular grade, with acceptable sulphur levels, are around the same levels as Group I solvent neutrals in Europe, selling between $575 and $600/t basis FOB Northwest Europe.
This small but growing part of the base oil market is now using advanced hydro-processing technology and using high spec used lubricating oils as a starting point. According to the 2009 Guide to Global Base Oil Refining published this month by LubesnGreases, Western Europes rerefined capacity is now almost 700,000 t/y, about 9 percent of the total. All of Europes domestic Group II/II+ capacity is rerefined.
Prices in the EMEA base oil market are heading north and fast. All petroleum product numbers are on the move, and in only one direction.
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.