The arbitrage for API Group I material flowing from Europe to the Far East has reopened, with prices taking a large hike in the northern Far East sector. FOB prices in Europe have reacted, albeit rather lazily, to the new variations in prices between Europe and export destinations. The market reaction in EMEA has also been somewhat diluted by the Labor Day holidays, which closed much of Europe on Monday this week.

Prices for Group I base oils in Europe have increased by some $10 to $25 per metric ton, basis FOB sales. These numbers may be pushed higher, narrowing the gap between opportunities for delivery to deep-sea locations and the current levels seen from producers today.

Many producers are also stating that they have few prompt barrels of any grades for loading during May and are looking now to book quantity sales for June, with prices to be agreed either on a floating basis, or fixed and firm nearer the loading date range.

SN 150 demand has apparently taken off, and with few avails of SN 500 and bright stock, this may be an opportunity to balance the barrel in terms of sales.

Prices now lie in the range of $825 to $845/t for light neutral grades such as SN 100 and SN 150, with SN 500/600/650 between $855 and $880/t. Bright stock where available is largely unchanged at $1,010 to $1,030/t. All these prices refer to FOB sales ex main European producers.

With crude oil gaining strength during the past few days, it appears that feedstock levels could put more pressure on EMEA base oil prices. This was not borne out, however, with feedstock and product prices remaining stubbornly reticent to move in line with rising crude levels. WTI was trading just above $86 per barrel, whilst the European marker crude, Dated Brent, remains in ascendancy and is trading at more than $2 dollars higher, around $88.30/bbl.

Product prices appear to have stabilised, with demand lowering for distillates as the warmer season kicks in. Demand for motor fuels is diminishing within Europe due to higher local taxes creating higher prices for consumers. With demand lowering for products, it would be simple to equate base oil prices with their cousins in the petroleum products sector, but due to the higher global demand for lube oils, this is not the case.

In the north of the region, fewer Russian barrels are coming to the export market through traditional supply routes. Large slugs of Russian base oils are reportedly exported to China via the eastbound rail system. The attraction of this market for Russian Group I producers is that Chinese prices have risen and are about to rise again. The relatively small amounts of material currently offered for sale through Baltic ports are being snapped up quickly by traders, many of whom have yet to decide on ultimate destinations for these grades. Options for receivers include the United States, South America, West Africa, and the Far East.

Baltic prices are still a little lower than mainstream European avails, but the gap is closing. These grades are being sold at $800 to $830/t for light vis grades, with SAE 30 and higher vis equivalents at $800 to $850/t, basis FOB Baltic (and in one isolated case, Black Sea) ports. Both heavy and light vis grades appear at the bottom of the spread where perceived quality is poorer.

This week a cargo of 4,000 tons of Iranian SN 500 has reportedly been sold for loading ex BIK during the first week of June. Whether this cargo will be bridged through the United Arab Emirates or lifted directly is not yet known. With intensified pressure by Western banks not to transact with Iranian counterparts, exports of Iranian base oils are increasingly difficult. The official price for this parcel was $860/t FOB.

A number of enterprising parties use local currencies or barter systems to effect the export of Iranian base oils, to fill market requirements in the Far East and India.

South African prices increased as forecast, and there are rumours that further increases will come. Levels are now $1,085 to $1,100/t for light Group I solvent neutrals, $1,090 to $1,145/t for SN 500/600, and around $1300/t for bright stock. These prices are for delivered base oils ex Johannesburg satellite supply points. Levels may move again later this month and be valid for June deliveries.

West Africa is still awaiting the arrival of a large 10,000 ton parcel into Nigeria from the Baltic and Northwest Europe, along with another two more regular cargoes due during May. Prices are estimated around levels quoted last week for CFR deliveries. The later of the cargoes may show higher prices than previously offered, up by some $40 to $60/t due to increases in FOB values and freight rates to these locations.

Prices of Group III imported from the Far East moved up sharply this week. Another factor affecting the sales of Group III in Europe is the plunging value of the U.S. dollar versus the euro. There has been a seventeen point movement downwards within the past five weeks, and with further economic turmoil to come in Greece and other potential bail-out countries, there may be scope for further weakness, and hence further price rises. Group III grades are now between $1,200 and $1,300/t equivalent, delivered European mainland.

Group II material is seeing greater demand within the EMEA region. However this is amidst increasing price levels as producers and distributors try to reestablish acceptable netbacks and realisation for these products. Currently Group II base oils are between $1,030 and $1,155/t, basis delivered European mainland. With further increases, these grades are maintaining their distance from the increasing values attached to Group I base stocks.

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.