Arbitrage for European barrels to move to the Middle East Gulf, India and Far East remains firmly closed, with European price levels for API Group I base oils much higher than at any other production source. With these supply avenues closed, opportunities for European and North African base oils to move freely to export sales are limited, perhaps putting a brake on further price increases, at least until other producer sources catch up or European levels start to fall back.

Some buyers say prices have risen enough for producers to recoup losses and cover raw material cost increases which hit the market from January through March. With crude prices dropping back to $118.50 per barrel this week, against a backdrop of new Iranian attitudes to the West, and with ICE gas oil front month numbers unchanged from last weeks $994 per metric ton, many concur with the buyers rationale.

Producers still say prices are not yet up to acceptable realisations versus other products in the barrel and levels must continue to rise. Buyers who have experimented with new supplies from Far East and have used Group II grades instead of Group l may not return to their original buying roots for some time, which may free up some avails, helping the market to reverse out of shortage.

There is a lot of talk regarding the level of production of Group l base oils, particularly in Europe, but when these products return to a positive contribution for a refinery, production levels should increase. With gas oil entering a lower-demand season, there may be added incentives to produce more base stocks.

The market certainly sees demand prompted by immediate shortages, and some players believe European demand is starting to reappear, although normal business has yet to resume in Spain, Italy and France.

Prices are still moving upwards in Europe, as base oils become available. Group l solvent neutrals at the light end of the range are $1320 to $1345/t, with heavier neutrals offered at $1330 to $1375/t. Bright stock is moving up to $1380 to $1420/t.

Given that not all suppliers have a continuous supply of material available, there have been some anomalies with oddball prices being shown by one or two suppliers. These variances will no doubt be evened out over the next few weeks.

Baltic & Black Sea
Russian Baltic prices remain firm, with some asking prices higher than mainstream European numbers, limiting buyer interest. Its normal for these grades to be available at lower FOB prices than Northwest European and Mediterranean sources. Higher prices demanded from Russian and Belarus refineries, where local demand is running high, is creating competition for export barrels.

Prices have moved upwards again this week, with distributors offering SN 150 and SN 500 at $1330 to $1345/t basis FOB. Availability is attracting many enquiries, but at these prices negotiations are hard, and no reports of traders paying these levels have been gleaned from the market this week.

Buyers in India and West Africa who enjoyed bargain basement prices around the turn of the year are reeling in disbelief at selling levels in the Baltic, and are refusing to embrace these prices since their local markets cannot absorb these higher costs.

In the Black Sea region, limited Russian avails are touted at exceptionally high levels. For example a mixed cargo of SN 150 and SN 500 has been offered at $1380/t basis CFR Gebze port, while other offers for Middle East Gulf SN 500 material in containers have been around $1350/t on a CIF delivered basis. Buyers in Turkey have been looking at alternative sourcing. Some are looking to the Mediterranean and others are arranging cargoes of Group l and Group II material from Far East sources. These latter parcels are said to be price competitive and freely available from the Far East market.

Whilst this report deals with occurrences within the EMEA regions, it is impossible not to include the flow of material now emanating from Far East suppliers. The Asian market for Group l and Group II base oils has been similarly depressed, but has not responded with the rapid price hikes seen over the last month in Europe. The gap is narrowing as prices rise in Far East, but there are opportunities to move material from East to West, against the norm for the base oil trade.

Africa
Also taking advantage of these supplies are receivers in East Africa and South Africa. Quoted prices have not changed since last week and are still $1390 to $1445/t for Group l solvent neutrals, with small quantities of bright stock around $1530/t. All prices refer to CFR or CIF delivered numbers.

Buyers in West Africa, particularly Nigeria, are alarmed at the rapidity of the price movements for base oils coming into this region. This area suffers badly when prices rise, due to the time lag between forming a deal and the delivery date. This can take up to six weeks, during which the base oil market in Europe in this instance has moved upwards by some $300-plus/t.

Prices for West Africa destinations today are $1485 to $1525/t for Group l SN 150 and SN 500, with bright stock now at $1550 to $1560/t, basis delivered CFR.

Group II/III
Group II pricing has risen again in the U.S and in Far East, so European import prices have been moving continuously upwards this month. Instead of waiting for month-end revisions, suppliers are being forced to increase prices more frequently, in line with source FOB levels.

Levels are now $1335 to $1375/t for the lighter vis grades, with the heavier end sold ex-tank at $1400 to $1465/t. These grades are available in Northwest Europe and in the Med.

Prices within the Middle East Gulf regions for Group II material have also been revised, and are now $1250 to $1290/t for 150 N, whilst 500 N is around $1340 to $1365/t.

Group III remains buoyant in Europe with prices starting to move upwards on a more regular basis. This week has seen another round of small but significant increases from both importers and local domestic producers.

The lighter 4 cSt grades are 1435 to 1485/t, whilst the heavier 6 cSt grades are 1480 to 1495/t. Some importers are looking to sell 8 cSt products in the European market, although the requirements for this heavier vis material would be substantially less than the lighter grades. Prices for the 8 cSt material are being investigated and will be incorporated in future reports if required.

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.