Europe base oil export prices rise, but overall demand disappoints

11 September 2012 23:59  [Source: ICIS news]

LONDON (ICIS)--European Group I base oil export prices have increased $5-15/tonne (€4-12/tonne) this week supported by high feedstock costs, but overall demand remains poor, sources said on Tuesday.

Latest market indications show that solvent neutral (SN)150 and SN500 European base oil export prices have moved up modestly, supported by firm feedstock costs.

However, overall demand continues to disappoint and this is limiting the upward price movement.

“People are buying hand-to-mouth,” explained a northwest European producer.

“There is a general consensus that prices will go up but because they haven’t seen anything yet, they don’t want to take positions.”

A South American seller mirrored these sentiments: “The market is still a bit ‘wait and see’,” later adding: “We expected it to be a bit better at the beginning of September, but it hasn’t picked up yet.”

A European trader said: “We haven’t seen a very exciting September so far. People are not in a hurry to buy to be honest with you.”

The ongoing firmness of upstream markets is pressuring base oil suppliers’ margins and raising the possibility of European base oil production rates being cut.

According to market sources, $230-250/tonne over the cost of upstream vacuum gasoil (VGO) is considered to be a breakeven cost for European Group I base oils production, although this value will vary widely by producer and whether they are integrated up the crude oil chain.

At present, the spread between the current SN150 FOB (free on board) Europe export low and VGO is $124-137/tonne.

This week, a south European producer said its medium-term availability for export is being cut as its refinery expects to reduce base oils rates in October.

Poor base oil margins mean this refinery will likely channel its feedstocks into alternative products, such as fuels.

“The margins on Group I base oils are not good. That is a fact,” said a European trader.

SN150 and SN500 export prices were assessed by ICIS up $5-15/tonne this week, to $990-1,015/tonne FOB and $1,005-1,025/tonne FOB Europe respectively.

($1 = €0.78)


By: Carl Roache
+44 20 8652 3214



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