Coupled with an increase in crude oil values, feedstock levels are increasing, whilst at the same time alternative products such as gas oil and low sulphur diesel have risen in value, providing stiff competition for the production of base oil barrels.

Against this background base oil prices are gaining, with sellers advising short validities on offered prices. Some local distributors in Northwest Europe are issuing weekly prices, subject to change between close of business Friday and Monday opening. Resellers and distributors are not able to set prices far in advance, as current levels may have to be amended.

With Dated Brent crude oil breaching $117 per barrel in Tuesday trading, this new recent high is not reckoned to be the apex of the rise. The highest crude price since May 2012 is reinforcing the hard fact that prices for petroleum products will rise, and to prove this point, ICE gas oil has surged through the $1000 barrier in early week trading to close on Tuesday at $1002 per metric ton.

API Group l base oil prices are higher than posted here last week with increases applied on a relatively gradual basis. There has been little evidence of swingeing increments to prices, rather sellers have been selecting new offers some $20-$50/t higher than before. They are still willing in some cases to entertain small counter bids, which do not erode the upward price revisions.

Levels for Group l light solvent neutrals are now $915-$935/t, with heavier grades such as SN 500/600 now offered in a range of $935-$965/t. Bright stock quantities are priced at $1040-$1075/t, with some sellers looking for higher levels if this product is being sourced on a stand-alone basis.

The levels above pertain to cargo sized parcels of mainstream production, which can be loaded ex mainland European and North African refineries, where availability allows.

European local base oil sales are still somewhat depressed. Due to the lack of activity in this market it appears to be more difficult for sellers to escalate prices. Whilst attempts have been made to push levels higher, buyers have reacted by shopping around to find the best source of material outside contractual arrangements.

There are still adequate differentials of some 45-80/t applied to material sold into local markets, where at one point in the recent past, local prices appeared to be merging with the export markets, blocking any premiums which would have otherwise been applicable.

Baltic & Black Seas
Baltic sales are pushing ahead with increases to FOB prices, but with added limitations on shipping due to ice-class vessels required for loading material out of this region, freight rates have been lifted on the back of lower levels of available tonnage and rising fuel costs. This will have an effect on the CFR levels for this material and receivers in West Africa are being prepared for sharp hikes for the material currently being loaded out of the Baltic.

Levels around $915-$955/t are being offered from sellers within the region for the two main grades SN 150 and SN 500, but more than one distributor has warned of further increases on the back of higher FCA prices being paid to Russian and Belarus refiners. Buyers are countering hard against the latest increases, expecting FOB levels around the $900/t mark. These expectations look somewhat unrealistic. SN 900 is in relatively short supply for the moment, with small quantities offered around $975-$985/t.

Black Sea areas have shown a high level of enquiries from Turkish buyers with some looking to take larger cargoes from less traditional sources such as South America and Middle East. The run of Iranian cargoes from Middle East Gulf traders appears to have halted for the moment, causing a renewed interest in Russian avails being loaded locally.

Prices for these grades are similar to Baltic FOB levels, but with Russian traders preferring to offer on a CIF basis, numbers are offered at close to $1000/t basis delivered Gebze port. It must be noted that material being delivered currently is showing at around $925-$935/t, but with latest price increases, levels close to $985-$1000 are expected for future cargoes of SN 150 and SN 500.

Middle East
With much of the near Middle East declared a war zone, Israel and Egypt are the only areas showing regular movement of base oil cargoes by sea. Jordanian and Lebanese buyers are procuring from their local sources in the south of the region, and with the latest Sudanese tender reallocated to incumbent suppliers, this region is commercially flatlining at the moment.

Middle East Gulf trade is booming once again with Bahrain and Qatari exports reaching new highs, and with UAE blenders looking for new sources for the supply of all three types of base oil. There are a number of enquiries for Indian Group l production to be despatched into UAE, although landed prices appear to be on the high side for importers, at proposed levels of $975-$995/t CIF, whereas Iranian barrels of SN 150 and SN 500 (albeit in short supply and accompanied by trading difficulties) are still available around $905-$920/t FOB UAE ports in bulk, with flexies of the same material being offered FOB at $985-$1025/t.

Prices are moving upwards in the Middle East Gulf regions but are moving at a slower pace than those from European sources, perhaps as a result of the proximity to Far Eastern sources and markets, where base oil price increases have not been so evident.

Africa
East African and South African sources are still looking for supplies of Group l material both in bulk and in flexies. Quantities of SN150 and SN 500 in containers have been arriving into Durban and Mombasa where these can still compete with local material. With prices edging higher in the source markets, prices may have to rise in these areas, but with no announcements of local price increases from the two producers in South Africa as yet, these imports may start to be uncompetitive.

Prices are currently around $1085-$1125/t CIF Durban in respect of the two main Group l grades, SN 150 and SN 500.

West African receivers and importers have been busy exploring the market for the next round of cargoes to arrive in Ghana and Nigeria, and appear to have gravitated back to the usual sources in Baltic, Northwest Europe and the Mediterranean. Three parcels have been negotiated this week with two cargoes loading out of the Baltic ports with other options for loading in Europe en route. One Med cargo is making up the supply numbers, but with further cargoes from the Baltic being talked now, Ghana and Nigeria could see a round of some 60,000 to 75,000 tons of base oil arriving between now and the end of March.

Levels are currently estimated around $1040-$1065/t for the range of Group l solvent neutrals, with the heavier SN 900 from the Baltic landing at around $1090/t, and with bright stock coming in at $1165-$1185/t. All the delivered prices refer to CFR landed rates.

Group II/III
Prices for Group II were raised by some European distributors from Feb. 1 by $20-$40/t (or euro equivalent), with most buyers accepting the increases. Levels are now $1085-$1100/t for light viscosity grades, with heavier grades such as 500N and 600N around $1185/t.

With higher levels being announced to west coast Indian receivers, Middle East Gulf purchasers of Group II products are expecting prices to be jacked up when renegotiations begin for the next tranche of material to arrive from Korean, Malaysian and Chinese sources. Prices are estimated to be $1035-$1050/t for light grades, with higher vis grades such as 600N around $1125/t. All on the basis of delivered CIF southern Middle East Gulf ports.

European Group III producers have started pressing for increases, stating that with raw material costs and feedstock values mounting, these grades must keep pace with the rest of the crude refining slate and thus it is necessary for all grades to achieve higher realisations and netbacks.

Some suppliers have notified increases of around 20-30/t across the grades. Prices will now be established at 965-1025/t, basis ex tank supplies.

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.