The European API Group I scene may be finally going short, brought about by production cutbacks over the past years, a number of turnarounds planned in the coming months, and markets such as the Baltic where material has suddenly disappeared with only vague ideas as to when to expect replenishment.

The Group I scene has completely turned into a sellers market in the last two weeks. With large sections of the supply chain now missing, and the remaining parts unable to take up the baton due to lessened production, the dynamics of the European scene have radically altered.

Light solvent neutrals are now $930-$955/t, while SN 500 is now offered at $945-$970/t. Meanwhile, bright stock has become the shortest of all, with demand far outstripping availability. Prices have vaulted to $1095-$1145/t, with increases to come.

These prices pertain to FOB levels of Group I grades made available through supply points in mainland Europe and North Africa where avails allow.

Local demand within mainland Europe appears to have picked up again after rumors of a short market filtered through to buyers who are keen to lay hands on parcels of Group I over and beyond contracted volumes which may already be in place. Buyers say that they are protecting their stocks from any shortages which may occur over the next few months, with some laying down increased inventories to ensure a steady supply stream of Group I grades.

With finished lubes business beginning to pick up again after some five years of stagnation, shortage is seen as the worst possible scenario.

A premium over export prices has been difficult to pinpoint this week, but estimates of offers and sales of Group I grades completed in the last few days suggest that domestic buyers are paying some 80-110/t over levels mentioned above.

After sources in the Far East and U.S. announced Group II increases of $20-$30/t, levels for ex tank sales of light and heavier vis grades have started to rise within the European mainland. Also assisting the move is the uptick in Group I prices, which will be seen as a gauge for pitching Group II base stocks.

Current sales have been reported at slightly higher levels, with further increases already in the pipeline. Prices for the light vis grades such as 100N and 150N are now $1040-$1075/t, with higher viscosity 500N/600N being offered ex tank at $1150-$1220/t.

Group III prices appear to have remained relatively flat, with sellers mentioning expectations that prices for Group III material will follow Group I and Group II increases. One producer / importer suggested that prices might start to rise from April 1, and another seller commented that levels might rise after March 17. Buyers appear to be relaxed, stating that they always have alternatives when purchasing Group III products, although many are tied into term contracts.

Levels are maintained, under the condition that increases will be applied within the next few days by some suppliers, with others delaying until month end. Prices for the 4 cSt grades available ex Antwerp-Rotterdam-Amsterdam storage by truck are 920-925/t while 6 cSt grades are 925-930/t.

Baltic and Black Seas

Group I Baltic sales are reported as scarce, with any material on offer being high-priced and low in quantity. Levels being asked for some avails of SN 150 and SN 500 have breached $1000/t, with traders complaining that receivers in export markets will not accept these sudden increases. Sellers are unable or unwilling to negotiate. Very little material is coming out of Russian or Belarus refineries, and with a lack of replenishment stocks, distributors and traders in the Baltic are unable to offer cargoes for receivers in export markets such as West Africa, Middle East Gulf and India.

No avails have been heard for quantities of SN 900, adding further pressure to mainland supply sources bright stock avails.

Black Sea trade is confined to Turkmeni and Uzbeki base oil sales, which are largely unaffected by Ukraine problems. Prices for these grades delivered into Turkish receivers are $945-$955/t CIF, whilst European Mediterranean levels are closer to $965-$980/t, mainly for supplies of heavy neutrals or straight SN 500 which is not available from either Turkmenbashi or Fergana.

Reports are that Turkish exchange rates have realigned to welcome trade again.

Middle East

Syrian deliveries are limited to Russian supplies, but it is unsure if these parcels will be flowing now, due to problems in Black Sea load ports for material coming through Ukraine and Crimea. Cargoes were loaded ex Theodosia, which is now under pseudo-military rule.

Egyptian imports of bright stock are once again figuring in requirements for the region, but with tenders now limited to the few suppliers who can accommodate the terms and conditions for this business, this has become a restricted trade. It is not known whether there has been a new tender issued for supply for the next quarter, or if an extension has been granted to the existing incumbent.

Red Sea cargoes of Group I solvent neutrals continue to load with one parcel being booked for Singapore, and others for Oman and United Arab Emirates. Prices for these cargoes into U.A.E. are rising, according to receivers, with levels now approaching $1085-$1100/t CIF Middle East Gulf ports. Meanwhile, local-origin material and re-exported SN 500 is still available at around $1025-$1030/t basis FOB U.A.E. ports. Prices for these parcels have risen substantially in the past few weeks.

Without Russian cargoes of SN 500 coming into Middle East Gulf, and with the lighter Turkmeni grades being exported through Black Sea instead of into Iran, the Middle East Gulf region could ultimately go short of Group I grades. Some of this slack may be taken up by the Group II influx, but with a large number of turnarounds, and Far East suppliers lowering Group II production, certain supplies could be threatened.

Bright stock with local specs is priced around $1135/t in bulk, or $1195/t in flexies, whilst European and U.S.-origin bright stock is around $1225/t FOB. A cargo of bright stock and other Group I heavy neutrals is en route to the west coast of India and U.A.E. from U.S. Gulf Coast, expected around the end of March. With few other options for bright stock supply into these regions, more exports from U.S. may find their way into Middle East Gulf ports. European bright stock will be scarce and could alter trade into Middle East Gulf for the future.

The Group II scene in Middle East Gulf areas is expanding, with U.S. producers interested in integrating their production into a region which generally does not require a raft of original engine manufacturer approvals, and where Group II can be used as a direct substitute for existing Group I blends, adding value and formulation upgrades simultaneously.

Prices for Group II have risen $10-$20/t, after receivers who had little choice finally accepted them. Should refusal to accept prices continue, Group II is not long in this region and could be sold as alternatives. With new increases from U.S majors for Group II material at source, it is envisaged that prices may continue to rise in the Middle East Gulf, which will eventually percolate to end users.

Light vis products are relatively tight, with sources commenting that they expect this to reverse later in the season, with higher vis grades going short as temperatures start to climb. Sellers have commented that they expect higher vis prices to move faster than other grades, given demand forecasts, and that prices may be substantially higher by end of summer.

Levels for CIF Group II light vis grades 100N, 150N and 220N are $1070-$1110/t with heavier grades 500N and 600N between $1145 and $1225/t.

Africa

East African imported Group I SN 500 has increased in delivered CIF price by some $25/t this week, perhaps taking account of the rising FOB numbers in U.A.E. and India, where much of this supply originates. Prices have climbed to $1145-$1185/t CIF for the virgin base oils, and even recycled material has been reviewed upwards, taking typical levels to $1020-$1055/t CIF East African and South African ports.

West African prices – particularly for Nigeria -are moving fast, and with a number of enquiries that are usually covered by Russian and Belarus exports from the Baltic, shortfalls may be imminent. A few players are starting to look elsewhere for Group I products, which could suit some end users in the Nigerian market looking for low-cost, low-spec and high-viscosity material.

There may be sources in regions such as South America, Central America, and even Far East which may have to be tapped to cover West Africas requirements.

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.