Given the underlying strength of crude, the threats of extended production cuts from Russia and OPEC, and the potential that economic sanctions will be reinstalled on Iran, the possibility exists for crude to rise still higher.

Europe

Prices for European API Group I exports continue to firm on the back of higher raw material costs, with spot prices for light solvent neutrals moving up to $875/t-$895/t while heavier grades rose to $930/t-$960/t, and bright stocks are now being offered at $1,010/t-$1,060/t. Buyers are still keen to obtain barrels at these levels, suggesting that upward pricing pressure yet looms.

The above levels pertain to large cargo-sized parcels of Group I base oils available on an FOB basis ex mainland European supply points.

Prices for Group I sales within Europe appear to have settled after the revisions put into place at the beginning of May. However any expectations of a hiatus in the upswings this month seem misplaced as indexed prices are still showing steady increases on a week-to-week basis. The large increases notified at the end of April and beginning of May have been accepted by buyers who anticipate more of the same at the end of this month.

The differential between exports and intra-regional sales prices is assessed at 30/t-80/t, export prices being lower.

All Group II exporters to Europe have now announced increases in their home markets of $35/t-$50/t, and the market is watching to see if these are applied to values in Europe. In addition, the euros exchange rate with the dollar has dropped from $1.25 to $1.17, putting further pressure on euro prices.

FCA Group II prices increased the past week to $985/t-$1,025/t (840/t-876) for light-viscosity neutrals and $1,065/t-$1,090/t (910/t-930) for heavies.

European Group III trade is buoyant again, and sellers are lifting prices in line with Group I and Group II values, and buyers arent even putting up much fight. Four and 6 centiStoke oils discharging into Antwerp-Rotterdam-Amsterdam climbed this week to $1,000/t-$1,025/t, on a CIF basis. FCA sales of the same grades are now assessed at 935/t-970/t for oils with partial slates of finished lubricant approvals. Those with full slates of ACEA and European OEM approvals are at 960/t-985/t for 4 and 6 cSt and 905/t-930/t for 8 cSt, basis FCA Antwerp-Rotterdam-Amsterdam.

The latter prices are for smaller ex-rack or truck-delivered lots and do not reflect material delivered in bulk cargoes to large users such as major blenders or additive manufacturers.

Baltic and Black Seas

Baltic reports are that some traders and resellers are moving away from dealing with West Africa trade and are concentrating more on the short-sea trade business into Scandinavia, Antwerp-Rotterdam-Amsterdam and the United Kingdom. Sources said some West Africa buyers are prevaricating on deals that otherwise should be simple to execute, and some sellers claimed to have lost interest in Nigerian inquiries, at least at this time. This could be a blow to a number of West Africa buyers who have been trying to purchase products without using traders, dealing directly with Baltic suppliers.

Prices for Russian SN150 is $20/t-$30/t higher this week to at $845/t-$865/t, and SN500 rose a similar amount to $915/t-$940/t, basis FOB. SN900 in bulk is now between $950/t-$975/t, while various bright stocks are $930/t-$1,055/t, depending on source and loadport.

It was another relatively quiet week in the Black Sea markets, apart from confirmation for another large parcel of some 13,000 tons being fixed STS Kavkaz, Russia, to load later this week for receivers in Singapore. These deep-sea trades appear to be soaking up all the availabilities of Russian exports coming out through Black Sea ports, with few smaller cross-Black Sea trades being seen in recent weeks and months. There were rumors last week to suggest that another large parcel was being proposed that could be loaded toward the end of May.

The economics of these cargoes is fascinating, since prices for Group I grades such as SN500 are pitched around the $800/t mark in Singapore. For these cargoes to load out of the Black Sea and discharge into ports such as Singapore would suggest that STS prices for these grades are extremely competitive and are estimated at around $725/t. This figure is based on the assumption that landed prices have to be comparable to local material, taking account of low margins and keen freight costs. Obviously last week’s assumption that the arbitrage into Far East was closed was inaccurate

There are few inquiries for Mediterranean cargoes to move into Gebze and Derince, Turkey, perhaps suggesting that local blenders are opting to take domestic material. Offered prices for Greek and Italian cargoes are reported at around $925/t-$955/t for light neutrals and $965/t-$990/t for SN500 and SN600, basis CIF. Bulk deliveries of fully approved Group III base stocks ex Mediterranean are offered into Gebze at around $1,065/t-$1,095/t CIF or an equivalent euro price.

Middle East Gulf

Red Sea traffic is light this week, with the latest cargoes already loaded out of Yanbu and Jeddah, Saudi Arabia, for the West Coast of India and the United Arab Emirates. Further movements of local supplies are expected into Sudanese receivers in Port Sudan and Port Suakhin, although there would appear to be competition for the latter supply with traders looking to load out of Leixoes, Portugal to supply the same requirement.

Group I activity in Middle East Gulf regions consists of imports from Red Sea sources and also a small number of Iranian cargoes, some of which have been delivered previously and are now being re-exported from the U.A.E. to India. With the U.S. position now clear regarding Iran and its nuclear treaty, the next stage is to see if another pact can be made either including the U.S. or between Iran and the other nations involved.

Sanctions have not yet been discussed, but without an agreement to some form of treaty, these are almost sure to follow. The outcome of such sanctions is unknown but ultimately there would be an effect to the exports of base oils (and other products and crude) coming out of Iran. Receivers in the U.A.E. have made inquiries for large quantities of Group I base oils to move from the U.S. Gulf, which may indicate concerns regarding the medium- and long-term availability of Group I grades in this region.

FOB prices, both actual and notional are rising constantly on delivered cargoes as well as FOB rates for local sales. Values for 4 and 6 cSt grades from Adnoc and Bapco, which carry partial slates of approvals, rose to $885/t-$900/t, basis FOB. The same grades of Neste-branded base oils, which come from the same Sitra, Bahrain refinery as Bapco but are fully approved, are at $925/t-$955/t.

These FOB levels are established on a netback basis using published shipping freight rates and taking into account advised CIF prices from a variety of sources.

Yanbu exports of Group II grades are moving into receivers in the U.A.E. and India. These grades carry approvals and are being sought by a number of major blenders in the Middle East Gulf to replace imports from Far East suppliers. Prices for material being delivered into Middle East Gulf receivers has not been disclosed, but these Group II grades are considered to be priced on a different basis from product being supplied into India.

Established supplies of Group II base oils originally sourced out of the U.S. are supplied ex U.A.E. on an FCA, truck- or sometimes tote-delivered basis. Prices are revised upwards to $1,025/t-$1,060/t for 100N, 150N and 220N, with 500N/600N between $1,120/t-$1,170/t. These prices are based on imported material being resold ex rack, by truck or by tote or flexi-tank.

Africa

South African sources suggested another sizeable parcel of Group I base oils will be imported from European sources either from Augusta, Italy, or from Rotterdam and the U.K. This shipment has become a pattern, and it is considered that Group II grades could also figure in these imports from next year, when Group II production commences in Rotterdam.

In West Africa another large Group I cargo from the U.S. Gulf Coast is loading for Nigeria. Taking comments received from Baltic suppliers this week, it is not surprising that this 10,000 tons parcel is being sourced from the U.S. or that two more inquiries are on the table for material from the U.S. Gulf Coast.

Some Nigerian receivers who can vary the amount of base oils they resell have declined to take cargoes for the time being, citing high prices as the reason. Sources suggested markets in the country cannot absorb levels now being charged for Group I base oils, and without local buyers these traders have decided to take a back seat and wait until the market either adapts or reverts to lower cost material. In either case this could take some time.

Elsewhere in West Africa the contracted supply for the Ghana requirement in Tema is being organized and will be delivered in early June. Receivers in Guinea and Ivory Coast may be included, although sources could not confirm a prompt purchase.

According to agents for receivers, prices for Group I base oils loaded for Nigeria this week are indicated at $940/t for SN150 and SN180, at $995/t-$1,025/t for SN500, SN600 and SN700 and at $1,055/t-$1,100/t for bright stock. These latest prices had been negotiated prior to the latest round of source increases for Group I base oils, many of which were announced this week from both U.S. and European suppliers. No SN900 prices were available this week, due to the lack of offers from Baltic suppliers for this grade.

Quoted prices refer to large parcels of Group I base oils delivered into Apapa port, Nigeria.

Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly atpumacrown@email.com.