Buyers are still cautious of the markets volatility, commenting that prices may be going up. But equally, they may also come down if the hike in crude and product prices becomes unsustainable due to temporary blips caused by political and economic dramas in the Middle East, which may fizzle out like a damp squib.

Essentially the global crude market is balanced. But regional problems with resultant shortages and tight supply will certainly give impetus for demand and prices to rise for remaining supplies.

Dated Brent is around $115 per barrel, up $3 to trade at a new recent high. West Texas Intermediate has widened the crack to around $8 per bbl, perhaps suggesting that despite the possible supply interruption in the Middle East, U.S. inventories should be largely unaffected.

The U.S threat to strike against Syria obviously influences perceived risk to crude supplies, but overall the scene is calm, perhaps limiting crude oils climb. Meanwhile ICE gas oil has elevated itself to new highs with front month trade prices around $964 per metric ton. VGO is also showing strong demand in Europe for both high and low sulphur grades. The backdrop should intensify base oils climb, but this may be even longer than the normal lag due to limited quantities of product.

Group I prices are maintained around last weeks. The market is certainly bullish with prices being talked higher. But with few deals noted this week, it has been difficult to adjust upwards. Light solvent neutrals are still $990-$1030/t and heavier grades are showing at $1025-$1065/t, the slight upwards tweaks being the low ends of the spreads. Bright stock is available in large quantities from many suppliers and is maintained at $1110-$1175/t. This range is wider than desired, but reflects small quantities of 500 tons being sold at the high end, whilst quantities of 2,000 to 5,000 tons are nearer the lower numbers.

These prices refer to the few sales and offers supplied ex mainstream supply sources within Europe and northern Africa, where availabilities prevail.

Local domestic sales of Group I within Europe have been limited following the end of the holiday season. More players are back at their desks this week, but it will take another week of catch-up for the trade to start the Autumn production drive.

With several buyers receiving notification of price increases from Sept. 1, local prices for truck and barge delivered base oils are on the rise. Some increases have been dismissed by buyers as ridiculous, with some finding it impossible to pass on these increases to finished product sales. Increases of 30/t — 125/t have been reported for a number of Group I grades. With suppliers not offering discounts, the differentials between local pricing and the larger export FOB levels have escalated to around 95-150/t, but with the premise that export levels may still be moving upwards.

Baltic & Black Sea
Baltic sales have been quiet, with a number of distributors and traders returning from vacation this week. Avails are sporadic with some sellers offering large slugs of material for September loading whilst others are more reticent to make offers for future material on a fixed price basis. The confusion over the export duty has still not been satisfactorily resolved but sellers report that FCA prices have risen in accordance with other petroleum product prices, and hence these will necessarily have to be passed on to FOB sales out of the Baltic ports.

SN 150 and SN 500 are now around $1020-$1055/t, and SN 900 is offered for September loading around $1085/t. There are rumors of lower prices offered to some traders in return for future commitments to lift large parcels of base oils at prices to be agreed down the line. These parcels would generally be for sales into western Africa.

Black Sea sales are weak. Some Turkish buyers are fishing for bargain deals, but are basically window shopping whilst testing the various sources for latest prices. There are still offers for material exported from Turkish traders, where purchases of material have been placed in tank but have not been utilized for blend stock as yet. With rising prices over past few months, it now makes fiscal sense to move these exports out of storage.

Both offers into and out of Turkey are around a similar level. SN 150 is quoted around $985/t basis FOB and for CIF. Some buyers will not deal with other resident traders, and preferring instead to purchase from the usual external sellers. Russian supplies of SN 150 and SN 500 are offered around $990/t basis FOB, with delivered Gebze levels showing around $1025/t CIF. There are few reported deals being done, with stocks and inventories still high in Turkish ports.

One reason for this large stock position may be the declining sales of base oils and finished lubes into Syria from Turkish sources. Logistics have become extremely difficult, with the transportation of material by road into war-torn regions of Syria becoming almost impossible due to high risks.

It is not clear whether the planned 5,000 tons of cargo from the Baltic was discharged into the Syrian port of Baniyas or not, but few if any cargo movements have found their way into the region the past few months.

Middle East
Egyptian business is also slow due to the countrys own civil unrest, with only Red Sea cargo movements unaffected by the more northerly areas of the Near Middle East.

Middle East Gulf business is recovering, following the period of Ramadan, the Eid holiday, and the usual very warm peaks of temperature during which many base oil and lubricants players exited their offices.

Group I supplies have been imported from Saudi Arabia and Pakistan, whilst few if any Iranian cargoes have been reported as moving out of the Gulf or across into United Arab Emirates for blending or re-export. It was suggested last week that Iranian SN 500 had been offered below $800/t, at around $785/t basis FOB BIK, but this has not been substantiated. Other reports are than Iranian producers were trying to increase prices for SN 150, SN 150 and SN 650 for export to west coast of India where national producers have increased prices in part due to devaluation of the rupee and increasing raw material costs.

Group I imported prices from Saudi Arabia are heard at $1065-$1085/t for the solvent neutral grades, with bright stock imported into U.A.E. around $1145/t. These supplies will be utilized for marine, gasoline and diesel engine finished lubricants.

Africa
Eastern Africa flexi trade has been brisk with a number of parcels in containers delivered into ports such as Dar-es-Salaam, Mombasa, Beira and Maputo. Most of these supplies originate from U.A.E., although some Indian-sourced base oils had been seen prior to price increases. Prices for SN 500 delivered CIF into these ports is reported around $1145/t, and with lower spec, is able to compete with locally-produced material exported from South African producers.

South African base oil refineries are supplying increasing quantities of Group I base stocks into eastern African receivers, where local blending is now taking place rather than the importation of finished lubes as used to be the case previously.

Western African trade has been quiet with only the announcement of the annual Ghana base oil supply tender being won by a European-based trader along with the support of a central Mediterranean major producer. This changes the supply source and may affect avails either way from both the incumbent supplier and the new source.

Nigeria has had a relatively quiet month, with some new cargoes now on the water for September arrival. These are based on Baltic and northwestern European loadings along with one suggested supply from the U.S. Group I prices landed during September are expected to follow the upwards swings in the FOB markets, with receivers paying higher levels than the last tranche of cargoes delivered in July/August.

Levels are $1085-$1120/t for SN 500/600 with bright stock where applicable being delivered at around $1190-$1225/t, all on a basis of CFR Nigerian ports. SN 900 ex Baltic is being received around $1085/t in respect of September arrivals, but prices for this grade are sure to move upwards to around $1145/t within the next month due to the increases in FOB prices.

Group II/III
Group II prices for mainland Europe can now be assessed at $1130-$1165/t for light vis 150N and 220N, with the heavier 500N and 600N between $1230-$1270/t. Imports from the U.S. have dramatically increased, reflecting source-based upward movements which in some cases were as much as $60/t. These increases have been largely due to the rising levels of WTI and other U.S crudes which have risen by higher relative values than Dated Brent. These increases have brought feedstock prices more into line with Far East costs, which have also risen in line with crude and product levels.

Spot Group II cargoes are being offered into Middle East Gulf buyers, but generating little interest. Some potential receivers have advised that prices have moved too far too quickly, and it has been difficult to absorb these increments into the supply chain. Indications on the table at $1085/t in respect of the light vis grades, and $1195/t for 600N have been dismissed by buyers as too expensive. These are delivered values basis CIF MEG ports. Buyers are looking for fixed price deals for these grades where they are not subject to fluctuations and subjective pricing from index linking with published pricing sources.

Buyers are looking for a fixed price deal some $25-$30/t lower than these linked prices provide at this time, and have reiterated that with Far East prices rising they are not prepared to stake a deal on floating numbers.

European Group III is now 950-975/t for the two main grades utilized within the mainland, 4 cSt and 6 cSt. Enquiries and liftings appear to have started to take off this week with a number of blenders confirming their orders for September delivery. A couple of suppliers have used September 1 to try to lift prices off their low points, but with the market full of discounts for volume lifting, total value added and post-delivery adjusted prices, the true picture will only evolve later. On paper, prices have marginally increased over the last few days, but many buyers are skeptical that these rises will hold given the potential for another oversupply scenario coming along during the next couple of months.

Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in East Grinstead, U.K. Contact him directly atpumacrown@email.com.