Dated Brent crude oil retracted today to around $109.20 per barrel, off around $2.50 from highs earlier in the week. ICE gas oil front month also followed the downward trend to land around $918/t late Tuesday.

API Group I prices within Europe are maintained this week but perhaps wont be for long with only one historical report from last week showing rising levels for quantities of SN 500 and bright stock in combination. In this instance, levels have been pushed up $10-$15 per metric ton, with the seller insistent that this parcel is not available on a comparable quality and quantity basis from any other acceptable source. Currently, light solvent neutrals are still $905-$925/t with higher viscosity grades up to $925-$960 pmt.

Bright stock spreads also reflect slightly higher numbers with larger quantities now between $1060-$1095/, and some smaller parcels being currently offered (not sold) at $1105-$1120/t. These prices could change overnight, depending on action in Ukraine.

Prices referred to above pertain to FOB export sales and offers in respect of large parcels of Group I base oils supplied ex mainstream locations within European mainland and North Africa where available.

European local demand seems to be flat-lining again after a period of upbeat sales and activity. Some blenders attribute this to the expected influx of Group II material. Others say the drop resulted from a rebound after heavy buying in February for spring tenders. Whether either or both explanations are true, the Group I domestic scene is weaker than it was last month, and prices have accordingly come in line with expectations.

Local selling levels are now assessed at 60-85/t over export prices.

Some European buyers are now actively searching out supplies of Group II grades for the remainder of 2014 and beyond. Those buyers producing finished lubricants to original equipment manufacturer (OEM) specs are adopting long-term views of this market and want to protect niche business which will only grow with emissions legislation and controls coming to the fore.

Prices appear to be stable-to-firm at this juncture, moving slightly forward over the past weeks. Levels for light vis grades are $1025-$1065/t along with 500N/600N being offered ex tank at $1135-$1195/t.

An element of keeping light grades competitive against Group I is certainly around, but the quality premium attributed to the higher vis grades is more than justified. Hence, price levels for these grades may start to rise over the next few months, according to sources. According to importers of these grades, Europe is seen as a growing market which will yield acceptable realizations for Group II base oils now and going forward.

There is talk of another Group III oversupply situation starting to break in Europe, with a number of existing sources within Europe and elsewhere ratcheting up production. Coupled with new production coming throughout the year, theres certainly a potential for the market to be awash with these grades. This is despite producers commenting just last week that they could consider increasing Group III avails in view of a strong market.

In the meantime, prices appear to be stable, with 4 cSt grades at 920-925/t and 6 cSt grades at 925-930/t, all basis ex rack sales at Antwerp-Rotterdam-Amsterdam storage.

Baltic and Black Seas

With the current activity in Ukraine, a number of Baltic sellers and distributors are pushing offers up by $35-$50/t. Commenters say that available replenishment stocks will certainly be priced higher, and with the threat of sanctions against Russia, the outlook for April and beyond could be one of limited avails with rising prices. Offers heard this week confirm upward movement, with SN 150 and SN 500 touted at $925-$955/t basis FOB Baltic ports but with validity on prices in hours and days rather than weeks. SN 900 has been quoted at as high as $1065/t.

Traders and receivers looking at supplying areas such as West Africa have reacted quickly by issuing a number of enquiries for prompt loadings which will only fuel the potential for price hikes. Short term future prices are set to climb, even on the uncertainty factor alone. EU or U.S. sanctions could alter the whole dynamic of the European base oil supply scene.

Some Turkish buyers have issued prompt enquiries, but with loading ports in Crimea and other parts of southern Ukraine under military control, it is very difficult to see how normal business can operate. Shipping is only one problem – many sellers are issuing a moratorium on all trading until the situation is clear.

With Ukraine to the north, Syria to the southeast, and Iraq and Kurdistan to the southwest, Turkeys lubricant market has been thrown into total mayhem.

Middle East

Middle East Gulf regions report almost normal business, with reported increases in demand for finished lubricants from all regional end uses, which surprised a number of producers and operators in the area.

This uptick in demand may be one of the catalysts, along with changes to European prices, to move base oil numbers higher within these regions. Many distributors and traders have been trying to pitch prices higher with United Arab Emirates exports of Iranian-sourced Group I SN 500 offered between $995-$1010/t basis FOB. These prices are substantially higher than previously seen and could signal market direction. Exports to India and other receivers in the region are also increasing along with large parcels of Group III production coming from Bahrain and Qatar.

Higher-spec Group I base oils from Saudi Arabia and local production are priced higher, and indications for these products arriving into U.A.E. and Oman are around $1065-$1090/t CIF in respect of light and heavy neutrals.

Group II prices imports into Middle East Gulf from Far East and sometimes U.S. sources have firmed up by some $10-$20/t for cargoes arriving during March and April. Increments of $20-$30/t were being sought by suppliers who postulated that light vis grades had shortened and therefore were to be moved up, but sources report today that heavier grades such as 500N are now going short, with the effect that prices for these grades are also moving up. Sellers expect to lay out offers at around $25/t higher than current CIF prices, and with healthy demand, these offers may stick.

Representative prices for Group II grades being delivered CIF MEG ports are currently assessed at $1055-$1100/t for 150N with heavier 500N and 600N between $1130/t and $1210/t.

Africa

East African receivers are again looking for low-priced Group I base stocks, with some preferring to opt for recycled grades instead. Typically, Group I SN 150 and SN 500 is being delivered into ports such as Mombasa and Dar es Salaam in flexies at $1125-$1160/t CIF, with recycled oils being offered delivered between $980/t and $1025/t, depending on quality and source.

Similarly, flexi-based offers into Durban for SN 500 are being tabled at around $1140/t for new offers, a substantial increase due to the FOB levels in U.A.E. climbing over the past few weeks. The future of Baltic-loaded SN 500 which was being shipped on a regular basis into South Africa must now have question marks around it due to the current supply scene in the Baltic, although alternative sourcing in South America or the U.S. might be possible.

West African-contracted business with index-linked pricing from supply sources in the Mediterranean continues unabated. However, buyers and receivers in Nigeria contacted over the past few days are extremely concerned about the possible lack of material and potentially rising prices from Baltic sources. Many have issued prompt enquiries only to be informed that prices and avails are currently under review, and that any subsequent offers will be accompanied by short validity for acceptance.

Prices are already moving upwards in anticipation of further increases from traders and distributors on an FOB basis, with one offer for a Baltic-loaded cargo around $65/t higher than an expired offer from last week. Suddenly this region is facing a sellers market, with levels assessed yesterday at $1085-$1100/t for Group I solvent neutrals, along with bright stock at $1200-$1235/t. No offers CIF Apapa have been heard in respect of SN 900 loaded ex Baltic, but estimated values suggest that current offers would be around $1155-$1170/t, given FOB and freight estimates.

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.