These prices were offered for May barrels, but two producers say they have no available SN 500 or bright stock until June, and at this time they are unwilling to offer numbers for these deliveries.

The underlying fundamentals have been weaker over the past few days, with crude values retracting from the highs of some ten days ago. WTI is quoted around $82.55 per barrel, once again below Dated Brent, which was reported at $84.50 during recent trading. The implications are that with the U.S. dollar strengthening against most major currencies, and particularly the euro (given the Greek bailout situation), crude will continue to trade lower. But there is one school of thought saying crude oil could move upwards and break through $88/barrel, due to downside dynamics not being substantiated by the market.

Low sulphur vacuum gas oil has come off in value again, trading at around $580/t. Due to no arbitrage from the United States, and with local demand slumping, there is very little pressure from the feedstock side to add netback value to European Group I base oils.

The talking point in Europe and the Middle East Gulf this week concerns the new prices levied by U.S. producers of Group II/II+ material – up as much as $140/t or more. The expectation in the market is that these increases will be mirrored in sales prices throughout the European mainland and beyond. Blenders within the EU are bracing themselves for news from their distributors for May and June deliveries.

The differentials between Group I and Group II price levels have become somewhat blurred over the past few months, due to continuing high demand for Group I material in the Far East, which has been, and will continue to be serviced from Europe and Middle East Gulf outlets. Whilst Group II prices have moved steadily, they have not maintained the original deltas between Group I solvent neutrals and Group II base oils.

Perhaps these adjustments could be judged a realigning of the relative values of each of these types of material. At the same time they could give more scope for Group I producers to increase base oil output with higher and more attractive price levels, lower feed costs, and certain demand from Far East receivers, which will continue on a longer term basis, even with the current supply hiatus, which is not perceived to last for much longer.

These new levels will see the spread for Group II grades moving up to $1,000 to $1,175/t, depending on viscosity and delivery mode. Across the product spectrum heavy vis material will take the brunt of the price moves at the steep end of the increase curve.

Russian availabilities are not forthcoming, although one cargo of mixed neutral grades was loaded last week from the Baltic. Pricing has been difficult to establish, since negotiations for these small cargoes were done some time ago, and projecting historical data to notional future availabilities is not one of the strengths of this report. Suffice to say that the numbers for the slightly lower spec material coming from Russia and Belarus will ultimately follow the European mainland trend, perhaps with some delay factors.

In the Middle East Gulf region, Iran has increased the prices of all export base oils over the last few days and is now aiming to sell at levels which would produce FOB prices of $860 to $885/t. The reason for the aligning of prices to notional FOB status is that many international banks will not, or do not have the facilities to effect trade with Iran on a direct basis. A great deal of the Iranian material is now being treated as throughput stocks within United Arab Emirates, this exercise obviously adding to the costs of moving exports from this location.

This could be why Iranian exports are less frequently seen. Only one cargo of 5,000 metric tons was reported loaded over the past two weeks. Previously quantities between 15,000 and 25,000 tons were frequently loaded on a monthly basis.

Nigeria is awaiting the arrival of two European cargoes loaded over the past couple of weeks by traders, with another cargo being negotiated at this time. The cargoes on the high seas should be landed at prices around $885 to $895/t for the neutrals. With Russian barrels being primed for this area some time ago, neutrals may be offered CFR Lagos at lower numbers than reported before. Even with higher freight costs there are still savings to be made by importers not reliant on top of the range base oils. Prices for Baltic loaded material is in the range of $845 to $865/t, but these cargoes were negotiated and loaded some time ago with buying prices at levels of five or six weeks ago. Bright stock forms part of the current cargo and will be landed at levels around $995 to $1,035/t.

South African prices are about to be announced for the month of May, and it is anticipated that substantial increases will be applied to Group I material sold in the region. Prices, traditionally higher than in mainland Europe, will now leap to new highs of $1,035 to $1,045/t for light solvent neutrals, with SN 500/600 around $40/t higher. Bright stock should be in the region of $1,140/t, all prices basis ex tank supplies.

In summation, the EMEA market is relaxed regarding Group I base oils with few availabilities and a break in buying from Far East receivers, where full inventories and higher prices have depressed purchasing activity. Meanwhile the Group II market is steeling for increases which will inevitably be passed on to European, African and Middle East buyers.

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.