A number of maintenance turnarounds are programmed for the next few weeks, which will further restrict the supplies of base oils coming to the market. Petrogal (GALP) will commence such a programme, and most of its base oils appear to have been allocated for the rest of July and August. Other Mediterranean producers in Spain, Italy, and North Africa will follow suit, looking to place business only for September onwards.

Following the significant price hikes implemented at the beginning of July, producers are tweaking every last cent out of a market which they have not enjoyed for many years. From individual reports, the manufacturing fraternity appears to have no plans at this stage to increase production to meet any increases in demand forecast for the third and fourth quarters of this year.

Group I prices are now between $935 and $985 per metric ton for light vis solvent neutral grades, from SN 70 to SN 150, while grades at the heavier end of the train are $950 to $990/t, basis FOB mainland European ports. Bright stock has remained in the dark this week due to lack of availability, but contract business is yielding levels of $1,075 to $1,130/t, on the same basis as above.

Group II prices appear to be in line with Group I numbers, with some Group II+ material moving above the range up to $1,050/t, ex tank. This rather odd coincidence where the two types of material are comparable in price is a result of the large increases to Group I base oils during July, and it is envisaged that given time, Group II prices will again pull ahead.

Group III availability continues to be very limited, with a large number of enquiries coming from players throughout the region. There have been enquiries for both Group II and Group III grades from locations such as Nigeria, Angola, and South Africa, showing that blenders in those regions are adapting to producing up-to-date grades of finished lubes for industry and vehicles in those regions.

Prices for Group III grades have risen again this week, although it would appear that the increases started at the beginning of this month, and that receivers are only now paying new prices when replenishment takes place. Prices are now euro equivalent of $1,185 to $1,230/t for 4 cSt material and $1,240 to $1,265 for the 6 cSt grade. These prices are for material delivered by truck ex centralised storage in Northwest Europe and the Mediterranean.

Returning to Group I supply, Russian material has been missing from the market, although one trader has reported piecing together a large cargo of some 6,000 to 8,000 tons, for a destination yet to be disclosed. It is imagined that this cargo will be made up of many grades, some comingled and sold by viscosity, and may find its way to either West Africa or India, where both availability and price can be more important than quality.

Prices for Russian and Belarus material coming out of Baltic ports is between $892 and $930/t FOB, depending on quality and quantity being shipped. This is the price range for grades from SAE10 to SAE30, with higher viscosity grades such as I-50 commanding a premium over this range. In some cases this latter grade can be substituted for bright stock.

There are reports of a second large slug of Russian equivalent to SN 500 being sold to the Far East from one of the refineries in central Russia. This train-borne cargo will be made up of some three trains of about 3,000 tons each, and the destination is reported to be northern China. This is an oddball movement in light of a reported Chinese downturn for base oils, with prices dropping and material being freely available. This supply may be part of a larger contracted scenario, or it has been suggested that it may form part of a barter deal for other products coming out of China.

Middle East Gulf supplies continue to strengthen in price, mainly due to a number of tenders which have been issued over the last few weeks which are now closed or about to close. With suppliers viewing these tenders as luxury oversupply (business they can afford to turn away if not successful), some of the bid prices are believed to be extraordinary high, around $50 to $75/t above the current levels of $970 to $990/t for solvent neutrals, and $1,200/t for bright stock.

The anomaly in this region continues to be Iran. Export prices this week include a report at $860/t FOB for a cargo of 5,000 tons of SN 500; and at $850 and $855/t FOB respectively for two lots of 5,000 tons each of SN 150 and SN 650. These cargoes are for future loading, during August. Material finding its way into UAE for re-export is being touted at levels between $905 and $925/t, basis FOB Sharjah or Jebel Ali ports. The relatively low Iranian pricing is proof that very few traders and buyers can now deal directly with the supplying companies and banks in Iran.

As mentioned above there have been some small enquiries from West Africa for Group II and Group III grades, but these will take some time to put into place due to the high FOB prices and transportation with flexibags to this region. Bulk enquiries have been slow this week, perhaps given the realisation that delivered prices for base oils will be high for CFR cargoes reaching this region, and probably will remain so for some time. Estimated prices are similar to last week on the basis of European FOB levels plus freight, $1,060 to $1,085/t for light neutrals, $1,095 to $1,120/t for SN 500, and $1,175 to $1,200/t for bright stock.

The Turkish market appears to be relatively calm, with a few enquiries which are possibly only price checking. There have been some small imports of light Russian and Uzbek material by sea and by rail, but largely the market is preparing for the post summer period. Demand then is forecast to surge due to requirements not only for domestic use, but also for export of finished products to neighbouring areas such as Iraq and Kurdistan.

Crude futures have remained in the same range as last week, with WTI showing just over $77 per barrel in late Tuesday trading and Dated Brent around $75.25. ICE gas oil futures are showing strength, over the front, and next two months, but vacuum gas oil as a primary feedstock for base oils is languishing in limbo, with large buyers of this material from the U.S. actually offering cargoes of 50,000 tons with no takers on either side of the Pond. So no further pressure is being exerted on producers of base oils from a feedstock stance, and any further price rises will only increase refining margins for this product group, obviously depending on cost allocation.

These statistics are not lost on buyers, who will seize any opportunity to ask for prices to be lowered, but with very little product around to discuss, the supply/demand equation beats the raw material cost argument hands down.

With price pressure being continuously applied by the domestic European producers of Group I material, and a similar exercise being undertaken by Group II and III producers abroad, the EMEA market is possibly positioned to witness further price increases after the holiday period, when inventory replenishment, and subsequently demand, will certainly return.

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.