Crude oil markers have increased to around $78.40 per barrel for Dated Brent and $77.50 for WTI, showing gains on the week of around $2/barrel. This has reinforced the producer arguments that crude and feedstock prices are moving back to levels seen some two months ago, that current pricing for base oils is not unrealistic, and that base oils are following their time-honored delay by not responding quickly to crude and feedstock price spikes and troughs.

Prices discussed this week will try to reflect realistic selling levels for the various grades, not the inflated levels being asked by some producers, nor the unacceptable low levels being demanded by certain buyers in the region. Levels for API Group I solvent neutrals from mainland Europe are exactly as one week ago, between $890 and $935 per metric tons for the light ends, with heavy neutrals such as SN 500 and SN 600 coming in at $925 to $960/t, basis FOB sales. Bright stock is again difficult to place a real number against, since it is extremely short in larger parcel sizes, but can be priced in the range of $1,030 to $1,150/t.

The Group I market is seeing demand growing over the last two months, but so far only two refiners have indicated that they are trying to increase production levels to satisfy this demand. It would almost seem as if there is a fear of destroying the sellers market which exists at the moment, by bringing more material into the arena which might eventually dilute selling prices.

Buyers are saying that they will require more material during the second half of this year, but with blenders finding difficulty in increasing finished product prices, it is difficult to see how this demand can be met without lowering base oil numbers at source.

Elsewhere within the EMEA region prices are starting to come off the highs, to attract buyers to move material which is building up in the system. For example, in Iran, one producer has stated that unless Group I grades start to move in quantities as they did some six months ago, they will be forced to shut down the unit and wait until the market recovers before recommencing supply.

This week prices of $825 to $835/t have been offered by sellers for Group I heavy neutrals, but with few buyers coming forward at these levels, prices may have farther to drop before gaining the interest of blenders and end users in India, UAE and the Far East. This is a prime case where enquiries are being recycled again and again, with growing quantities in some cases for each requirement, reflecting the fact that inventories are falling, and that purchasing will have to occur at some stage to keep these end users in business.

Saudi Arabian prices for the same Group I grades have also come under pressure, and rather than defy buyers pleas for lower numbers the producers reduced prices by some $10 to $25/t, just to maintain flow, and indeed market share. In some cases Group II grades have been offered at very competitive levels to Group I material, and there may be a temptation to move to these grades rather than persist with Group I plus Group III.

Russian base oils have not reemerged with any raft of supply. Indeed the availability of the typical grades of SAE 10 and SAE 30 coming out of the Group I refineries has fallen off considerably over the last two months, without many of the sources coming back to the export market. What used to be a spate of material is now confined to a trickle, since the domestic markets along with Far East supply of large quantities are more attractive in netback terms to the producers in Russia than selling in small lots through trader networks into the Baltic and Black Sea areas.

On investigation, it appears that what has been happening is base oils have been pooled by some of the refineries into larger rail feasible lots of 3,000 metric tons or more, for transportation to Chinese and other Far Eastern markets. Top quality has been sacrificed by the better producers by adopting this pooling arrangement, but at the end of the day this practice has yielded better returns than the traditional method of each refinery selling production individually through a chain of local and international traders who obviously have been selling the material at market levels, having extracted their own margins in the process.

Russian producers have been able to sell this pooled material at levels around $900/t basis CFR delivery, in comparison with traditional Baltic sales for example which netback to around $780 basis FCA. This is after having undergone the tortuous and expensive local sales route which means rubles to euros, then finally FOB sales in U.S. dollars. With transportation, storage, and other ancillary costs for Baltic or Black Sea sales running at around $55/t, it is simple to see the attraction in selling directly by rail to traders or end users in the Far East.

This market has waned somewhat in terms of quantities of base oils required from the highs of some two months ago. However, this selling option will remain foremost in the producers minds, as and when the Far Eastern markets fire up again, as they most certainly will. This could mean a limitation on the amount of Russian and Belarus base oils flowing into the European marketplace, which could further shorten up the European supply scene

South African activity has been muted due to other activities going on within that region at the moment, but in West Africa there have been many enquiries. Some of these have been seen more than once coming from different local parties, where buyers are trying rightly or wrongly to spread their requirements to many producers and traders, perhaps naively not realizing that there are only a few sources for these types of cargo, where ultimately all the enquiries will gravitate at the end of the day.

Prices being offered for supply into Nigeria have seen large increments over past delivered cargoes, showing the effect of the short market for combination cargoes which are almost always required for this destination. Prices are being touted at $1,060 to $1,075/t for SN 150, and $1,180 to $1,100/t for SN 500, with bright stock at close to $1,300/t. These levels are being declined by prospective buyers again and again, going back into the melting pot to be cast once again through a different channel.

Group II and III have changed little within the week both in terms of prices and availability, continually responding to the source increases which have been levied on these products over the past three months. Prices remain in the bands of $930 to $1,060/t for Group II grades, and $1,085 to $1,200/t for Group III material, depending on viscosity and delivery location. These are delivered prices throughout the European mainland.

The EMEA market is approaching the summer holiday season in the northern hemisphere when activity traditionally slows down. There is growing frustration with producers seeing the same enquiry coming to them from a multitude of sources, and buyers are getting very little response to their pleas to buy at less than producers offered prices. This cat and mouse scenario will have a finale, but how it will be played out is anyones guess.

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.