These new distillate levels could impact base oil production almost immediately, but may also afford a cushion to enable refiners to maintain current base oil pricing levels. They may even provide an element of flexibility to cope with acceptable netback results with lower prices in a weak market.

Base oils, however, maintain a somewhat resolute position within the overall sphere of the petroleum market. This segment of refinery output will not be swayed into rapid price fluctuations as with other related products. Base oil production is clearly subject to crude and feedstock fluctuations, even on a daily monitored basis, but the increases and decreases in the market have either been too little, or have occurred too quickly for this segment to adjust.

The more often this see-saw effect occurs, the less likely the base oil market will follow by adjusting prices in line with short term rises and falls.

In the EMEA area, as with the rest of the world, there is still no direction to the base oil market, with producers apparently relaxed in the position they have regarding quantities available, and subsequently the prices at which base oils are being sold. Several producers have commented that they are satisfied at the moment with realisations and netbacks afforded to the sales of base oils within the region. There are however, a few exceptions to this panacea.

In mainland Europe, price levels are gauged to be similar to last week, at $735 to $770/t, basis FOB mainland European ports, for API Group I solvent neutral grades, with bright stock between $880 and $925/t, same basis as above.

In other areas there are exceptions to the static market witnessed in mainland Europe. In Iran, pressure is on price levels between $725 and $765/t, FOB, for Group I heavy neutral business. But an overall price of $705/t has been quoted for a large cargo of some 8,000 tons of combined light and heavy neutrals. Saudi Arabian producers are also being pushed to adjust selling prices for Red Sea production, whilst at the same time the same refiner is trying to increase prices within the region.

An interesting dichotomy, where within the same region, one band of producers is trying vainly to maintain pricing in the face of overwhelming buyer pressure, and another supplier is moving to increase numbers, presumably in response to raw material costs which have been allocated to these products. In fairness, these two supply chains are not pinpointing the same receivers in their respective markets, but the reality lies in the differences of more than $100/t on an FOB basis, for similar grades, within the same geographical area.

The announcement by two majors, Shell and Chevron, that their base oil prices are to rise, is said to be overdue. Increases of around 5 to 10 percent overall have been quoted in the market. Whether these increases will apply worldwide and to all grades and types of base oils remains to be verified. These price movements follow the increases by U.S. paraffinic producers over the past few weeks.

EMEA areas may now see follow-on price hikes for Group II and Group III base oils, which have so far been delayed or postponed, perhaps due to current inventories in tank. Replenishment supplies from producers in the Far East and in the U.S. should now reflect the current FOB levels from these refiners, and may increase prices for these grades by some $45 to $120/t, depending on source, grade type and delivery mode within the region. Suppliers from refineries in the Far East have not moved up prices by the same token as U.S suppliers, due mainly to the lack of demand in local markets, along with new production units coming on stream in Taiwan and Korea.

It is anticipated that Group II base oil will generally be priced between $925 and $1,085/t, delivered ex tank. Group III grades should adopt increases of the same magnitude, with prices widely ranging from $945 to $1,200/t on a delivered basis, ultimately depending on bulk or containerised supply.

Russian prices have steadied this week, with some interest being shown by Northwest European blenders, but are still at extremely low levels even for higher spec material. Belarus material continues to flow, but not in such liberal quantities as has been seen in the past. Prices for Baltic supply of the usual grades of SAE10 and SAE30 are established between $640 and $710/t, basis FOB Latvian ports.

West Africa has reached hiatus time, where sellers have presented their offers, and now the impasse. Buyers in that area have realised that prices for Group I material may not be rising after all, and if they wait they may be able to get lower numbers from European suppliers. This may not be the case for supplies from the United States, where prices for Group I have risen, and the freight aspect is also premium laden. Prices, however, are being quoted higher, in the ranges of $875 to $895/t for SN150 through to SN 650, with bright stock firming to around $1,000/t, basis CFR Nigerian ports. Prices are firming due to freight costs and are also reflecting CFR prices which have been offered from the East Coast U.S.

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.