ICE gas oil futures in Europe for front month showed 24-month highs at $835 per metric ton in trading earlier this week, with vacuum gas oil rising to the highest levels seen in daily trading for some time. The VGO crack remains extremely positive even against Dated Brent, and, along with progressive winter fuel-oil numbers, demand is causing base oil feedstocks to move to even higher values.

The base oil cocoon is not able to remain remote from this activity forever. Prices for API Group l grades produced in Europe and North Africa are continuing to rise driven by raw material cost increases and healthy demand through all of the EMEA markets.

Solvent neutral prices have moved upwards by $15 to $25/t over the last week and are primed for further increases. The heavier cuts such as SN 500 and SN 600 are in very short supply and are priced accordingly. Export prices early this week for a mainland supply of SN 500 were confirmed at an FOB level of $1,168/t, for some 2,000 tons. Light neutrals are gauged to be priced slightly lower, between $1,105 and $1,140/t. With rising demand for light Group l neutrals in the Middle East Gulf and Far East, prices are starting to move into line with the heavier material, particularly when sourced from prime mainland production.

Bright stock remains very scarce, highly priced and prized where available in large quantities. There is uncertainty over deliveries of 12 cargoes of bright stock for the Egyptian General Petroleum Corp. tender, since the discharge port of Alexandria has been a center of the civil unrest overtaking Egypt at the moment. Whether these cargoes are delayed or even cancelled remains to be clarified, since it is too early to evaluate the outcome of the protests occurring in that country. Should these cargoes not be required, or the delivery schedule delayed or postponed, then the market could see these cargo lots diverted to other areas such as Nigeria or Ghana in west Africa, or perhaps to receivers in Argentina.

Bright stock prices remain high, and small quantities have been sold ex Mediterranean refiners at close to $1,500/t, basis FOB. Prices generally are between $1,415 and $1,450/t FOB for cargo quantities.

Some base oil players wish to maintain a distinction between base oils used within the European arena and other stocks destined for export. There has never been an expressed divide between domestic and export pricing in this report, since it is written in the belief that in Europe and the other parts of the EMEA region, one market crosses and unfolds into the other. Separate pricing applying to one sector as distinct from another is merely reflective of package/load size and method of delivery, since in a free and open market, one assumes that buyers can purchase under whichever banner is most economically attractive, that is, at the lowest price.

Russian, Belarus, and Uzbek material is available ex Baltic ports, with supplies of SN 150, SN 500 and a very heavy neutral grade designated as SN 1200, along with some SN 900, on a prompt basis. Prices for these grades reflect the mainstream European market and are set between $1,030 and $1,075/t for the 150 and 500 material, with substantial premiums levied on the 900 and 1200 grades to give prices of $1,175 and $1,225/t respectively. All prices are quoted basis FOB.

In the Middle East Gulf there are reports of another round Saudi Arabian price increases. These add $30 to $70/t to all grades. These reports come amidst confirmation that the Lubref plant at Yanbu will increase capacity to more than 500,000 metric tons per year, incorporating Group ll and Group lll production at the same time.

Iranian exports appear to be flowing again, albeit in reduced quantities from last year. One cargo included 1,500 tons of bright stock, which is not traditionally exported from Iran (quantities are mainly imported from Indonesia and Thailand). From time to time there occur small surpluses of this material, and with export prices realising higher margins than domestic rates, the attraction is to sell this parcel for export at $1,400/t, basis FOB BIK port.

Other grades such as SN 650 and SN 150 are being combined to form one cargo of some 2,500 tons from BIK, with loading around March 3. Prices for these grades were first announced last week at $960/t for the SN 650 and $1,090pmt for SN 150, but this week they are priced at $1,015/t and $1,125/t respectively on same FOB basis.

South African buyers are looking for all Group l grades, but most are unrealistic in their expectations of the market. One importer was rumoured to have asked for price levels delivered Durban at $990 for light neutrals, and $1,040/t for heavier SN 500. These prices were dismissed as unattainable anywhere, even on an FOB basis, far less CFR Durban.

Offers have been made using Far East and Middle East Gulf sources, with another trader offering Baltic loaded material delivered Durban at $1,135 to $1,145/t for SN 150, and $1,165 to $1,180/t for SN 500.

The same Baltic combination along with quantities of SN 900 and SN 1200 has been offered into Nigeria. The receivers are currently evaluating whether these heavier solvent neutral grades can be used in place of bright stock. With a viscosity around 22 cSt the heavy SN 1200 may offset the need for bright stock in many blends.

Prices estimated for these cargoes arriving in Nigeria are in the ranges of $1,145 to $1,215/t for the spectrum of light to medium neutrals, with the really heavy grades landed around $1,300 to $1,350/t basis CFR Apapa port. At these levels, whilst not exactly commensurate with bright stock, there would be a saving of some $150 to $200/t against current bright stock estimates for cargo arrival within February or March.

Prime European supply of SN 150 and SN 500 to west Africa destinations are now in a band of $1,195 to $1260/t, whilst bright stock is $1,525 to $1,565/t basis CFR delivered in Ghana, Nigeria and Angola.

Group ll/ll+ prices within Europe have escalated, taking account of increases from source production in U.S. and Far East. Numbers are established between $1,135 and $1,195/t for the lower vis grades, with some of the higher viscosity products commanding $1,225 to $1,260/t. There is still an overlap between some Group ll and Group l solvent neutral grades, which will probably continue.

Group lll grades are still very much in demand. With the market about to go through monumental changes in supply sourcing, it will be interesting to note the changes which the new production will bring to this somewhat starved sector of the base oil market. Most players are saying that prices have moved as high as the market can take. Others are suggesting that with a future inflow of alternatively sourced material, incumbent producers and importers of Group lll material are desperate to hold on to market share.

Prices for Group lll appear to have settled somewhat since the middle of last month. Reports from receivers are that levels are as stated last week, around 1,375 to 1,425/t for the 4 cSt grades, and 1,425 to 1,455/t for 6 cSt material. These prices are based on delivered quantities of the two main Group lll grades.

The EMEA regions are anxiously evaluating the new era of $100+ crude oil and the effects which that price level will throw at the market, whilst at the same time assessing the grim possibilities of further civil strife in other countries within the EMEA areas, all of which makes for a somewhat uncertain future for base oils and the lubricants industry in this 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.