Enquiries have been rolling in to all producers and traders from North and South America, West Africa, India and as of late Tuesday, even the Far East is again looking for attractively priced European/Russian sourced barrels. This tremendous sudden demand for Group I material can only mean that either demand has surged on the back of economic growth, or there is still a lack of production to meet what may be described as normal demand returning to the markets.

There are no unplanned turnarounds or outages to take the blame for the lack of base oils, but with refiners still not prepared to gear up to pre-2008 production levels, these shortages will be around for as long as it takes to cover them, either from existing regular barrels or from a boost in refining output.

Prices cannot really be described as static in this current market, but since very little business has been transacted in response to selling offers which can be far above levels quoted in reports, it is difficult to pin accurate numbers on FOB sales.

Some suppliers have moved from offering on an FOB basis to offering only on CFR or CIF terms, thus controlling the shipping part of an operation. That can be beneficial by combining one or more part cargoes bound for the same geographical destination on the same vessel. This is being used to a large extent where intra-company trading takes place within oil majors companies and affiliates.

Group I prices offered from mainland Europe are now placed with the following ranges, where it is considered actual selling prices now lie. Light solvent neutrals are placed within a band of $890 to $935 per metric ton, whilst heavy neutrals such as SN 500 and 600 are to be found between $925 and $960/t.

With bright stock very difficult to find other than in large tender type offers, such as to Egyptian General Petroleum Corp., this grade has to priced in a wide spread between $1,025 and $1,150/t. All these numbers are based on FOB sales.

One peculiar development has been that regular buyers are not rushing to actually procure material, since as they have relatively high inventories, they would appear to be only testing the market to see if prices are changing in line with expectations. What is apparent is that there is still a pronounced stand-off between sellers and buyers at this point, which has been triggered by the overall movements witnessed in the crude and products sectors of the market during the last few weeks.

Sellers are still crying over the decreases from the high points which are still evident in the fundamentals camp, but with crude oil prices increasing over the last week to levels around $76 per barrel for both WTI and Dated Brent.

This positive gain of some $5/bbl came on the heels of decrease in crude costs, and some sellers suggested the chain of events may have occurred too quickly to allow for a decrease in base oil prices, which typically lag crude movements and change much less frequently.

Without knowing if and where crude costs will level out, it is difficult to predict whether crude will end up exerting upward or downward pressure on base oil prices.

Availability of Russian exports has re-emerged for July. These quantities are now being offered as alternative base stocks to buyers who would previously never have considered purchasing what some describe as secondary type material.

However, with the scarcity of prime oil coming from the main European producers, some of these buyers have been given very little option other than to purchase Baltic and Black Sea barrels at least as a temporary substitute to their normal requirements.

The other aspect is that these grades tend to be priced lower than majors material, thus at least possessing some attractive features. Prices for Russian base oils have moved up slightly only because those grades are actually available, and levels are now $880 to $930/t for SAE 10 and SAE 30 respectively, from Baltic port loading.

With bright stock in short supply in European-supplied areas, some buyers are tempted to buy some of the very high viscosity Russian base oils which are available from one or two refineries. Quantities of grades such as SN 900 are being sought for destinations such as West Africa, where blenders have the flexibility to utilize this type of product instead of using bright stock in a blend.

Prices for Russian heavy neutrals are ranged between $940 and $965/t basis FOB Baltic. There has been a rumor of a large export of Russian base oils, where some 10,000 tons is to be shipped by rail into China from an Eastern Russian refinery.

Iranian prices would appear to have stabilized, but at lower levels than the highs of some three weeks ago. Reports are this week of exports from Bandar Imam Khomeini, at between $835 and $850/t, exceptionally low numbers, but still not attractive enough for Indian and United Arab Emirates buyers to purchase.

A mixed cargo of Iranian material was offered out of UAE storage this week at $955/t for 900 tons of SN 150, $980/t for 2,200 tons of SN 500, and $1,080/t for some 1,700 tons of bright stock. Needless to say, there was no long queue of buyers looking to purchase at these levels.

The Far East arbitrage has fallen away, apart from relatively lower cost Russian material, and with economic alternatives of substituting Group II base oils in an otherwise flat market in that region, the need for European and Middle East Gulf exports of Group I products appears to be faltering at this current time.

However, there have been a number of new enquiries from South America for composite cargoes of high quality material, but these are unlikely to be serviced in the short term due to the lack of availability with Europe and the U.S. for these Group I grades.

West Africa has produced another raft of enquiries, but with little chance of concluding these cargo transactions. Buyers are looking for lower prices than can be found on an FOB basis within Europe, so the likelihood of these enquiries being converted into real business is somewhat unlikely.

Buyers asking prices are at levels of $935/t for SN 150, $960/t for SN 500 and 600, and bright stock at $1,050/t. Offered prices for material to be delivered into this area would lie between $1,050 and $1,090/t for the solvent neutrals, and if bright stock were possible, then somewhere around $1,200 to $1,250/t would be the price for that grades.

Group II prices have firmed considerably in Europe, suppliers having quietly nudged the levels upwards to attain a more respectable realization for these products. The netbacks for Group II material have been sadly falling behind acceptable levels for some time.

Only now, given the opportunity created by Group I price hikes and shortages of Group III in the European area, have the marketers been able to lift prices to a more acceptable platform. Prices have risen this month alone by some $40 to $60/t, providing welcome relief for importers.

Group III suppliers still have the exchange rate to be concerned about, but have stated that they are sold out of all available Group III material which they could have an option of placing in the European market. With new enquiries for Group III grades 4 centiStoke and 6 cSt being declined, or at least being postponed or delayed, prices will have to rise if the European market is to continue to be attractive to producers of these products.

Prices for Group III are sold in euro equivalent, at between $1,100 and $1,200/t. These are delivered prices, depending on location of delivery, and relative viscosity of each base oil.

Longer term, perhaps with indigenous production coming from the new plant in Spain, where SK technology and Repsol hardware will be coupled together to produce Group III base oils, Europe will be an attractive market both in which to produce, and also to import Group III material and other new technology materials beyond Group III+.

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.