The mounting pressure on base oil prices is twofold. First is raw material costs rising. Almost more important is the option for refiners to switch to producing alternative material such as more profitable low sulphur diesel oil. This second reason has caused base oil runs to be cut and is cited as the main reason for the lack of availability of API Group l material in the market.

Group l prices are moving upwards, and light solvent neutral grades are offered at $975-$990/t, with heavier grades such as SN 500 and SN 600, more in demand, around $995-$1025/t. Bright stock, where available, has been marked up to $1085-$1100/t. These numbers refer to FOB sales of mainstream Group l grades offered or sold from facilities in Northwest Europe, the Mediterranean and North Africa, where avails permit offers to be made.

In local markets within the European mainland, blenders say new purchases after Sept. 1 will be considerably marked up over July levels. Both buyers and sellers say they expect increases of 50-70/t for all Group l grades. The differential between export prices and supplies delivered within the European mainland by truck and barge is expected to rise again to around 80-100/t.

Baltic & Black Seas
Baltic suppliers are reeling from yet another announcement from the Russian government, that the petroleum products export duty will rise again by some 5.5 percent in September. This is in addition to the August increase of some $25/t. This latest increase to export duties is due to rising Urals crude prices during August, which is retrospectively applied to all exported products, including base oils, during the following month. It could mean another $55/t added to base oil prices.

Some traders are anxiously trying to beat both market and duty increases by bringing forward loading dates, but supplies are tight in the Baltic. Some sellers have ceased offering for any material until the export duties become clearer. Prices are largely notional at this time, but forward prices for September are estimated at $1025-$1040/t for SN 150 and SN 500, with the heavier SN 900 around $1075/t.

Black Sea trade remains sluggish, with Turkish buyers resisting coming to the market. The hike in Russian export duty is expected to affect supplies in the Black Sea during September, whilst Uzbek suppliers will have more pricing freedom. Prices for SN 150 and SN 500 are currently $965-$975/t, basis CIF Turkish ports, but sources say they may rise by some $50/t to similar levels as Baltic barrels.

Middle East
Parts of the Middle East remain almost closed to normal trade, with Syria, Lebanon, and Egypt all embroiled in civil war. Imports of base oils have all but been suspended into these regions, and local blenders are working hand-to-mouth trying to produce finished lubricants in these war torn regions.

Some supplies are finding their way into these markets through countries such as Turkey and Jordan, but the markets have been turned upside down by the fighting and many people are struggling to find lubricants to perform the most simple of functions.

Red Sea cargoes are loading out of Yanbu and Jeddah following Ramadan and the Eid holiday with destinations such as UAE, Oman and Singapore. Prices are expected to follow European Mediterranean levels, with Group l solvent neutrals selling FOB at $1000-$1045/t, and bright stock around $1100/t.

Middle East Gulf trade is returning, but many players will not return to their offices until the end of August. Iranian barrels are struggling to find markets and are being discounted further in attempts to place these supplies. Offered prices have been heard as low as $820/t equivalent for SN 500, with only some UAE traders interested to take these base stocks for re-export in flexies and in bulk. This is the only region in the EMEA where some base oils are not increasing in price.

Indian importers have shunned these supplies in favour of indigenous production which can be purchased in rupees, thus avoiding the double and sometimes triple foreign exchange transactions required to purchase Iranian barrels.

Africa
East African enquiries for SN 500 and for recycled base oils have permeated through the system, and are being supplied from UAE and Bahrain. Recycled oils are as much as $100/t less than even the heavily discounted Iranian material, and these oils are being liberally used in East Africa to blend second string finished lubes which do not require quality base oils.

South African markets are stable with prices marginally higher. Delivered levels for Group l base oils are $1120-$1165/t for the range of solvent neutral grades, with bright stock selling in the provinces at $1265-$1300/t.

Nigerian importers are vigorously declining new offers for September and October in light of the increases which have hit the FOB sales of these products. Receivers in Nigeria will not consider increasing prices and are looking for levels to come down from current delivered numbers. Some are adamant that Baltic supplies should be discounted further; this attitude appears to have been bred by traders heavily discounting some cargoes into Nigeria.

Levels for cargoes arriving now are $1025-$1055/t for the light and mid range neutrals, with bright stock at $1135-$1160/t, all basis CFR Apapa. Sources say prices for the same grades will certainly be around $50-$75/t higher for cargoes loading now, given market conditions.

Group II/III
Group II prices in Europe are responding to Group l hikes and to increases levied on these grades at source, although the full impact of all the recent increases may not reach the European markets until September or October.

Prices for Group II light vis grades have moved up to $1090-$1150/t, with the heavier grades 500N and 600N reaching $1180-$1240/t.

Similarly within the Middle East Gulf region, Group II levels have responded to Far East markets shortening up and healthy demand in China. September offers for imported material flowing into the Gulf have escalated to $1050-$1120/t for light vis products and $1140-$1200/t for heavier grades.

European blenders are once again in the driving seat when it comes to Group III base oils. Some supply issues affected exports from Bahrain, but this appears to have sorted itself out. Once again the market is approaching an oversupply situation. Prices appear to have slipped back to 940-965/t for both 4 cSt and 6 cSt grades.

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.