Crude values are rising again, with dated deliveries of Brent posting at $67.45 per barrel in London late yesterday, up about $2.50/bbl over the past week, and West Texas Intermediate rose around $1/bbl to $63.80/bbl, both for April front month. ICE LS gas oil rose some $20 per metric ton to $598/t, still for March front month.

The general upward trend of feedstock costs so far this year is now widely acknowledged and seems to be a significant factor on expectations in the base oil market, even if that market has not yet responded to the latest run-up.

Europe

Supply of API Group I oils in Europe seemed balanced previously but significant gaps are now showing in availability of a number of grades, causing buyers to have to scramble to assemble cargoes. Bright stock demand appears to be healthy and availability of large parcels sparse, leading some traders to look to the United States to fill requirements. But supply looks tight there, too.

Offered prices rose between $5/t and $20/t the past week, to $780/t-$795/t for light solvent neutrals and $845/t-$875/t for heavy neutrals and $945/t-$985/t for bright stock. These values pertain to larger cargo-sized parcels available on an FOB basis from mainland European supply points.

Group I sales within the region are buoyant as many blenders are looking to maximize contracted offtake. Some suppliers and resellers may have to invoke a version of force majeure unless they can access more product to replace fading inventories. Some sellers said they will only have material available at the end of March, and in some cases replenishment will not come until sometime in April.

This could exacerbate supply chain gaps opening across Europe. Some blenders are looking at options to take Group II grades as replacement, but these base oils are also in demand and tight, so that may not be an option for many.

Prices for any spot sales are higher than contracted levels, and buyers are anxiously awaiting March 1 to see what effects that will have on contracts. The differential between export and local sales is still assessed at 80/t-95/t.

Group II prices in Europe are under upward pressure due to the demand-supply balance and feedstock costs. Some buyers confirmed receipt of notices that prices will rise 20/t-40/t at the start of the month. For the moment, though, FCA prices from Group II distributors are unchanged at $890/t-$905/t (715/t-725 for sales conducted in euros) for light-viscosity oils and $960/t-$985/t (770/t-790) for heavier grades.

Group III prices should face upward pressure due to the trend for Group I and II, but Group III suppliers appear more focused on protecting or increasing market share. A variety of tools are employed toward this end, including retrospective discounting, quantity-related pricing and other buying incentives that can cloud net prices being paid by lube blenders.

European imported prices remain at around $880/t-$910/t, basis CIF, for 4 centiStoke and 6 cSt grades discharged into northwestern Europe, with local euro FCA sales levels around 845/t-860/t for 4 and 6 cSt grades. Group III oils with full slates of finished lubricant approvals, available on an FCA basis from Antwerp-Rotterdam-Amsterdam, are estimated to be priced higher, at 880/t-895/t for 4 and 6 cSt and 855/t-870/t for 8 cSt.

The latter prices are on an FCA basis or for truck-delivered Group III base oils sold to local blenders, and do not apply to material delivered in bulk cargoes to large users such as major blenders or additive manufacturers.

Baltic and Black Seas

Baltic reports describe a tight market and a lack of Russian barrels available for export out of the region. With one of the major suppliers not due to issuing material from its refinery until some time into March, and with three weeks lead time to move those base oils to FOB status, there are real supply problems for some of the distributors in the Baltic. Other supplies from a refinery owning company are still moving into Antwerp-Rotterdam-Amsterdam, but these quantities are insufficient to cover all contracted requirements during March and early April.

Prices are moving upwards for those grades available, and levels heard last week would suggest that prices are close to mainland European levels. Netback calculations suggest SN150 is being loaded on an FOB basis at $730/t-$755/t, SN500 at $775-790/t and SN900 at $835/t-$855/t. These prices are calculated based on CFR/CIF offered and delivered prices less freight. Various specifications of bright stock are estimated priced at $875/t-$955/t, depending on specification, quantity and supplying location.

Black Sea trade appears to be concentrated again on large Russian exports flowing through STS facilities at Kavkaz, Russia, and Turkish imports into Gebze, Turkey, and into Derince from Mediterranean suppliers. Another large cargo appears to be planned out of Kavkaz, going to the Far East on this occasion. This parcel of around 10,000 tons of heavier grades may load during this week if a suitable vessel is found. Other contracted supplies are identified coming out of Greece for import into Derince and Gebze.

Prices for Group I base oils have firmed throughout the Black Sea, both for Russian export barrels coming into Turkey and also for Mediterranean supplies of Group I grades. Light solvent neutrals are heard to have been offered at $785/t-$800/t, while offered prices for SN600 and SN500 have risen to $855/t-$870/t, basis CIF.

Middle East Gulf

Red Sea traffic reflects a number of large cargoes, presumably of Group I and II now that Luberef has announced the start of shipments after completion of a Group II upgrade at its plant in Yanbu, Saudi Arabia. There are rumors from sources that prices for the new production are formula-based using data from distillate postings.

The resultant prices have been heard to be very attractive, and with Indian buyers electing to lift a number of further large cargoes, this trade looks certain to continue. Exact numbers are only gleaned from port authorities in Mumbai, so the rumors about prices cannot be confirmed. If those reports are accurate, though, this Group II from Yanbu may find a market in Europe, which is perhaps the next export destination. Other Group I grades have been identified coming out of Jeddah, also finding receivers on the West Coast of India for quantities of up to 20,000 tons per parcel.

Iranian availability for Group I SN500 grades appears to have all but disappeared, with few reports of any material coming out of Bandar-e Emam Khomeyni, Bandar Bushehr or Bandar Abbas. There are some movements of Group I base stocks from United Arab Emirates going into Pakistan, believed to consist of Iranian barrels that had previously been exported and stored in Hamriyah.

Iranian internal demand appears to have risen significantly over the past six months, soaking up almost all avails of export barrels that were formerly sent into India. Some contend that U.S. Group I exports to the U.A.E. and India are priced lower and therefore have stymied the supply of Iranian product into those markets. There are currently no prices available for Iranian premium SN500 from Sepahan Oil.

Market sources say Bapco may soon start shipping oils with partial slates of approvals from Sitra, Bahrain, to India, where receivers have been taking large quantities of Group III base oils from the Adnoc plant in Al Ruwais, U.A.E. Buyers have been substituting Group III grades for Group II products for the past few months because prices and quality favored the former. Group III loaded out of Al Ruwais has also been moving into receivers in Sharjah, where a new installation is producing transformer oils.

Netback prices for Al Ruwais material is estimated to load higher this week, at around $780/t-$795/t FOB for 4 and 6 cSt, and values for partially approved Group III from Sitra are estimated at similar levels. Fully approved Sitra oils exported by Neste banner will netback higher and are assessed at $810/t-$825/t, basis FOB.

Prices regarding Group II base oils moving into U.A.E. from outside the Middle East Gulf region rose this week, to around $785/t for 100 neutral and 150N and $880/t-$895/t for 500N and 600N, CIF Middle East Gulf. Prices in the U.A.E. for local sales of Group II base oils on an FCA or delivered basis also rose to $895/t-$920/t for 100N, 150N and 220N, while 500N and 600N were flat at $1,000/t-$1,045/t.

Africa

North African receivers are actively pursuing a number of cargoes, some comprised of Group I and Group III grades. For example, mixed parcels are booked for Mohammedia, Morocco. More routine supplies of bright stock are going into Egypt.

West Africa receivers are awaiting arrival of a number of cargoes from the Baltic, the Mediterranean and the U.S. Gulf Coast, but no more fixtures from any of these sources are looming at present. Some traders said last week that laying hands on ideally sized cargoes with the preferred grade mix is now very difficult, and with severe supply problems in areas such as the Baltic, completion of new deals may be curtailed. Supplies of large parcels of Group I grades are also extremely tight coming out of the U.S.

Offers for re-refined base oils into Nigeria, reported here previously, have been widely accepted. Blenders appear to understand that there are some restricitons on use of these oils, but enterprising blenders are using them to cut costs. Prices are heard to be very attractive – around $765/t delivered CIF in flexitanks to Lagos container port.

Prices for Group I cargoes ex the Baltic and the U.S. Gulf Coast, which are already loaded for discharge into Nigeria on a CIF or CFR basis, were heard last week to be $875/t-$895/t for SN150, $955/t-$975/t for SN500, and $1,035/t-$1,065/t for bright stock. SN900 loaded ex Baltic is indicated only at $955/t.

As mentioned, these prices refer to Group I base oils delivered CIF/CFR to Apapa, Lagos, in parcel sizes of at least 6,000 tons total.

Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly atpumacrown@email.com.