Dated Brent crude oil is now trading above $118 per barrel, an upward swing of around $2 over the last seven days. As another indicator, ICE gas oil is currently at $1012 per metric ton, having traded as high as $1025/t in early week activity. The pressure is mounting for base oil prices not merely to follow suit, but to make up ground.

API Group I FOB prices have been extended further within Europe, with light solvent neutrals from spindle through to SN 150 now $945-$1020/t, with offers for heavier neutrals at $955-$1020/t. Bright stock where available is offered at $1060-$1100/t.

FOB prices above refer to bulk cargo sized parcels from various Group l refineries in mainland Europe and North Africa, where availability of each individual grade allows offers and sales.

The wide price banding indicates the rate at which the market is adjusting. Some of the lower end prices were offered last week, while this weeks offers are showing higher numbers in the spreads above. All offers carry very short validity time, and with delivery schedules for some avails not appearing until second half March, sellers are trying to push prices higher.

Comments received this week from a number of sellers suggested that they were concerned about future dealing using index related prices, and a preference for fixed price levels was being adopted. Hence any purchases not being loaded or delivered until March or April are being loaded with premiums in line with industry forecasts for petroleum products future pricing.

Local prices have moved upwards in line with those quoted above, but by lesser amounts. Starting from a higher base there has not been a need to apply increases to sales and deliveries which are being made on a more prompt basis. Local European prices are assessed around 45-60/t above those being offered for the mid range of the Group l grades above, depending on location and quantities of material being purchased. This premium is also being eroded as bulk export pricing levels rise to reflect selling options for producers to either sell to export, or to distribute in the local markets.

Baltic & Black Seas
Russian and Belarus exports from Baltic ports have seen price levels increase in line with mainstream European sentiment, whilst also reflecting the higher FCA levels being paid to producers. Numbers have escalated to around $940-$960/t FOB for SN 150 and SN 500.The heavier SN 900 grade is in short supply with relatively large quantities having been sold and loaded on recent cargoes destined for West Africa. Historically prices for this grade were around $35-$45/t higher than the other solvent neutrals, as will be the case when replenishment stocks of this grade arrive in tank.

Distributors in this region, some of whom were the first to collapse the base oil market back in September 2012, appear to be in the vanguard to hike prices back to positive margin levels, and with declining avails and demand starting to build in mainland Europe and beyond, they appear to be in the driving seat for the next ride.

Similarly in the Black Sea regions Russian supplies are back in demand, with a small quantity of 1000 tons of Uzbek SN 150 being offered at low levels around $900/t out of an eastern Black Sea port which does not normally handle base oil movements. The logistical costs of moving such a small parcel may outweigh any FOB advantage in the pricing of this material. Another cargo of 4000 tons of SN 150 and SN 500 has been booked ex Theodosia, with prices expected to be around $955-$970/t CIF.

Forward avails of SN 150 for March loading have been offered at $940-$950/t FOB eastern Ukraine. Prices are kept under review by traders but with a lack of further Iranian cargoes arriving into Turkey, 6000 tons from the Baltic and 2000 tons from Greece have been fixed to arrive into Turkish ports. In addition, a further South American cargo of 3000 to 5000 tons of SN 300 has been destined for Gebze discharge, but is allocated for different receivers from a previous cargo from the same source in December.

Middle East
Other regional sources such as Egypt and Israel are all committed to local supplies and although willing to consider export offers for Group l material, prices are at the top end of the European ranges, around $1020/t FOB for SN 150 and SN 500.

Red Sea base oil trade is relatively quiet with only one reported cargo of 3000 tons loading ex Theodosia destined for this region. Small imports in flexies are going into Somali ports, with prices for the Group l carrying high premiums due to shipping and security problems. Levels are around $1280-$1300/t for the range of neutrals.

U.A.E. and other Middle East Gulf areas appear to have higher demand for both Group l and Group ll base stocks. There appear to be wide variations and conflicting reports on Iranian price movements, with SN 150 reported sold at $875/t basis FOB BIK. Other comments and reports deny this and have offered SN 150 and SN 500 in combination at levels some $50/t higher.

Traders in U.A.E. are still re-exporting Iranian material at levels which have moved up substantially in the last few weeks to around $925-$955/t for quantities of SN 150. SN 500 is now priced higher at $935-$960/t, a reversal of the normal pricing trend where SN 150 being higher in spec and less available commanded a premium over SN 500.

The European arbitrage to the Middle East Gulf is still closed with recent movements in FOB levels, but there are rumours of Indian exports of Group l finding its way across to U.A.E. and other Middle East Gulf destinations.

Africa
East African imports into Mombasa and Beira of both bulk and containerised Group l base oils continue at prices higher than last reported by some $50-$80/t, being supplied from sources in Red Sea, India, U.A.E. and Far East. Offers for rerefined base oils have been prominent from sources in Yemen, but without reliability of specs and supply, high prices and dubious commercial practices, these offers have not been taken seriously. Prices were reported at $1225-$1275/t, basis containers FOT plant.

South African base oil production appears to be almost covering demand within the region, although some flexies are still being imported through Durban port, ex U.A.E. traders. Prices are still realistic against local supplies at $1095-$1145/t basis CIF delivery for SN 150 and SN 500.

West Africa is strangely quiet after reports of a large cargo loading out of the U.S. Gulf Coast of some 11000 to 13000 tons of mixed grades. It is anticipated that a large proportion of this cargo will be made up with bright stock, along with heavy solvent neutrals. Loading is scheduled for Feb. 24-26.

No new confirmed deals have been reported for Baltic loadings, since with prices starting to increase it is difficult to persuade local receivers in West Africa to accept new levels. Current prices are reassessed to reflect FOB increases. Estimated levels are $1040-$1065/t for solvent neutrals. Bright stock as part cargo will be landed between $1165-$1185/t, all basis CFR Apapa port, Lagos.

Group II/III
Group II European levels are increasing in line with Group l FOB numbers. These are not regular or sudden events, with upward movements this week of some $35-$60/t. Levels are currently $1095-$1130/t for the light vis grades, with 500N and 600N around $1225/t, all prices basis ex tank, Northwest Europe or Mediterranean storage.

Middle East Gulf Group II prices are confirmed at $1045-$1065/t for the light vis grades, from 60N through to 220N. The heavier, higher vis grades including 500N and 600N are $1070-$1145/t. These prices are based on material being delivered CIF/CFR southern Middle East Gulf ports from Far East sources.

Group III grades within the European mainland continue to increase gradually, with some suppliers incredibly expressing possible shortages of these grades. This is perhaps partly in response to a Malaysian refiner being down.

Further news of increasing price levels has filtered through the supply chain with some blenders stating that they have experienced increases of 25-50/t this week. It is unclear whether these are total increases for February, or are additional to Feb. 1 notifications. The bottom line however is that levels are now 985-1040/t, for both 4 cSt and 6 cSt grades, on the basis of 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.