Crude is forecast to rally to the $75 to $76 per barrel level, and then fall back to current levels or even lower, around $70. The market cannot cope with the speed of the decline of crude value and must readjust, with positional trading smoothing out the large swings in these prices.

These large, fast changes in crude and feedstock values do not help base oil manufacturers, the blenders or consumers of finished lubricants, but cloud the issue of where base oil prices should be at the moment, and more importantly, where they may be headed in the future.

Producers of base oils are in a quandary over whether to move prices, in what direction, and by how much. Buyers seize every negative in the market to talk prices down, but still rush to buy when it is perceived that the market is about to rise.

Crude levels could have an even greater effect on base oil prices were they not susceptible to reversing direction almost predictably. Base oil producers are in the fortunate position of not having to reflect a daily realisation for costs, and so can ride these movements with relative impunity. In fact, crude oil has only moved within a range of about $15 this year – nothing compared to previous times when moves up to $115 were seen.

Base oil prices have remained where they were within mainland Europe. There has been little response in the market to the pressures over a number of weeks to move global base oil prices upwards. Numbers are being seen and talked in the same band as previously, $745 to $785 per metric ton, for solvent neutral API Group I oils. There is a slight hint of firming at the bottom of this range, perhaps due to a tad more demand for light vis grades. Bright stock is still relatively firm, but with good availabilities, and is priced in the spread of $900 to $945/t, all the above basis FOB, mainland European ports.

Russian exports from the Baltic have been somewhat sporadic, with only some lower quality material shown as new barrels available this week. SN 150 and SN 500 (or equivalent grades) have been shown, but with few buyers rushing to acquire these cargoes. Prices are muted, with the two main grades at $710 to $730/t, for quality with VI below 90, slightly higher color, and lower flash points.

There are rumors that the domestic Russian market is soaking up a lot of the available material which would generally go for export. This can only happen if traders and buyers locally are willing to pay more in local rubles. Demand could be starting to recover within the Federation, or it could be time to replenish inventories which have been sadly depleted over the last 18 months.

The Mediterranean and North Africa are stable, with a number of refineries in the region announcing plans for annual turnarounds during the first and second quarters of 2010. Whether this will have any short-term effects on availabilities in this market remains to be seen, but if several of the refineries go down at the same time, then spot avails will be severely curtailed. This region is awaiting the results of a few tenders which will be served from within the area. The Egyptian tender for bright stock is forthcoming along with a Syrian tender for mixed grade cargoes.

There were reports that Saudi sources in the Red Sea had reduced their prices for base oils. This appears not to be the general case, but may have been an isolated supply, in an area which required adjustment against other local material. Prices from Saudi producers are still around $765 to $810/t for solvent neutrals, and for small quantities of bright stock, $925 to $965/t.

Iranian supplies have not returned to export levels seen at the end of last year. Whether this is due to political restraint or a government edict in view of potential embargo and other trade sanctions, is not known at this stage. Some SN 500 is being offered at $740/t basis FOB Bander Bushire, and there is a reshowing of availabilities of SN 150 and SN 500 at the exceptional price of $705/t. This is an unlikely reoffer, since the purchase of this cargo was independently confirmed some two weeks ago. In conjunction with this posted offer for a total of 8,000 tons is an offer for export of 1,000 tons of bright stock at $1,000/t FOB. This is a grade which is normally imported into Iran, and at much higher prices. An explanation was not forthcoming at this time.

One or two cargoes have arrived into Ghana and Nigeria from European sources. Delivered prices into Ghana are $840 to $855/t for solvent neutral grades, and around $980 to $995/t for bright stock. Nigerian prices will be slightly higher, between $855 and $885/t for neutrals, and $985 to $1,000/t for bright stock, basis CFR Apapa port.

East Africa has seen a rise in the imports of base oils and an overall fall in the importation of finished lubricants in 2008 and 2009. A great deal more local blending is taking place within this region, as the various lubricants markets expand. Traders have been largely responsible for this change, due to the flexibility required to handle this type of business, with extended credit, multi-receiver cargoes and the supply of grades from many sources such as Europe, Russia, Far East, and United States.

Rounding off this week, crude levels are moving back up with WTI trading around $72.60 per bbl, and Dated Brent coming off the low at sub $70, to reestablish at a level around $71.90. Vacuum gas oil levels appeared unaffected by the crude downturn mainly due to high demand from the United States; the low sulphur VGO crack flattened out around $4.40. This will still give stimulus to raise prices, even with crude levels low, and may yet result in higher prices for base stocks throughout the region.

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.