Some cynics are still predicting that OPEC member states and other oil producing countries will not adhere to promised production cutbacks and that this will lead to a renewed glut that will drive down prices. In addition, suggestions that conflict in Syria and the Levant may ease are fueling arguments that crude output may increase again toward the middle of 2017.

Europe

FOB prices for API Group I base oils in Europe have moved swiftly upwards in both offers and transactions. Light solvent neutrals rose to $610 per metric ton to $625/t, with availabilities increasingly limited. Heavy neutrals SN500 and SN600 jumped $50/t-$60/t during the past week to $695/t-$720/t. Bright stock leapt to $925/t-$955/t amidst high demand, though many players contended that the increased demand resulted from the price escalation because buyers were trying to lock into deals before prices climbed further. These prices refer to large Group I parcels supplied or offered FOB ex-mainland European supply points.

Given that crude is around 20 percent more expensive than in early December, many buyers are suggesting that base oil prices have reached their zenith or even are too high.

In trade within Europe, prices have been rising continually for a total of 50/t-60/t during the past 10 days. One buyer spoke this week of prices for oils being loaded onto trucks rising four consecutive days last week. Suppliers have limited volumes available at fixed prices, waiting until cargoes are in tank to set values for most sales. Buyers complain that they are profiteering from a fast-rising market, but sellers point out that they are risking the possibility that prices will fall. With the market tight, sellers appear to have adopted a take-it-or-leave-it attitude.

The differential between domestic prices and exports is proving difficult to determine now as both markets are moving rapidly. The spread is estimated here at 55/t-105/t.

European prices for Group II imports have risen because of two factors: price hikes in source markets and the run-ups in Group I values. Increases of $40/t-$75/t were announced in recent days for light and heavy viscosity grades.

Comments in recent days suggest that light grades of Group II oils are now being delivered at $645/t-$680/t, CIF main European ports, with the 500N/600N at $785/t-$825/t. Ex-tank purchases carry a premium of $35/t-$50/t.

The anomalous Group III market remains distinct from other API groups, with a lack of any substantial information suggesting that prices remain flat. The explanation may be simple – that prices have been kept in check by an over-supply of products with similar specifications.

There are vague talks around the market of sellers trying to raise some prices, but no sooner is evidence of one intended increase announced, than another supply is maintained at the current level. Therefore prices reported here are unchanged for 4 centiStoke and 6 cSt oils with partial slates of product approvals, at $665/t-$675/t, FCA Northwestern Europe. Prices for OEM-approved Group III oils, FCA Antwerp-Rotterdam-Amsterdam, also remain 705/t-735/t for the same grades, while 8 cSt material is 680/t, CIF. Large cargoes of Group III may be around $45/t-$70/t lower than the equivalent dollar prices for FCA sales.

Baltic and Black Seas

Baltic reports contain news of one large cargo of around 10,000 tons of Russian export grades loading in early February for shipment to Nigeria. There have been few such parcels loaded or even negotiated lately, due to continuing problems surrounding payment instruments from Nigerian banks. After the raft of parcels of Baltic oils were shipped to Northwestern Europe, receivers appear to have beaten the main price hikes and are now able to re-sell material in-tank at margins described as acceptable.

FOB prices have moved smartly upwards over the past couple weeks, tracking those in mainland Europe. Prices contained in offers for February loading of Russian SN150, which in tight supply are $575/t-$595/t where available in bulk quantities, while SN500 is $655/t-$680/t and SN900 $755/t. These levels represent dramatic increases over the past few days. Offers have been turned down by potential buyers looking for West Africa cargoes and also material into the United Kingdom and Northwestern Europe.

Black Sea traffic has resumed, as parcels purchased prior to the latest price increases are arriving into Gebze and Derince, Turkey. These include Group III imports, with a number of Turkish blenders taking advantage of lower-than-expected prices for these grades. A couple importers indicated they could purchase Group III base oils for less than Group II grades and that they felt they had little choice but to do so.

The export cargo identified last week at Kavkaz, Russia, has been fixed clean and will load promptly for delivery to the United Arab Emirates. Surmising that Iranian SN500 can be imported to the U.A.E. at lower delivered prices and perhaps with higher specifications, the Kavkaz parcel is assumed to be largely comprised of SN900.

Group I imports are being received in Gebze and Derince at $625/t for SN150 and $715/t for SN600. Again, these prices were negotiated before recent increases and may be $75/t-$100/t lower than those prices contained in current offers.

Middle East

Red Sea activity covers the Sudanese requirement and also a large supply contracted to receivers in Dar-es-Salaam, Tanzania. These have been supplied from regional hubs in Saudi Arabia. The Aqaba, Jordan, enquiry remains outstanding, with no further news on successful completion of this supply. Traders in Europe and the U.A.E. have re-offered for this supply on the basis of second half February arrival into Aqaba.

Iranian export trade appears to be quiet at the moment, perhaps indicating that rising prices stemmed interest from receivers in the U.A.E. and the West Coast of India. Some buyers said they have sufficient stocks after completing purchases ahead of the recent price hikes.

Iranian exporters meanwhile still have available material for onward sale and are looking for alternative destinations, but markets may need time to adjust to the latest hikes. Levels have not been clearly defined, and sellers say some buyers show willingness to offer “interim” prices. Offers value higher quality SN500 at $655/t-$680/t, basis FOB Bandar-e Emam Khomeyni or Bandar-e Bushehr, but, as described above, these levels may be subject to negotiation.

Iranian SN500, ex-U.A.E., is offered around $685 FCA, or $695 FOB.

Group I supplies ex-U.S. Gulf Coast have been fixed into Indian buyers in Mumbai, beating out offers for re-exports from the U.A.E. Some have noted that offered prices from the U.A.E. were higher than those on the West Coast of India, perhaps reflecting a freight issue. According to receivers in Oman and the U.A.E., SN150 ex-Saudi Arabia will delivered to contract buyers at $655/t, while SN500 is going for $735/t and bright stock for $985/t, all basis CIF/CFR.

Exports from Al Ruwais, U.A.E., continue unabated, although no new shipping enquiries appear to be hitting the market. Shipments to the United States and Europe are in planning stages, and receivers in the Far East are being tempted by offers of material to be available in February. There are talks in the region of maintenance work being planned at Adnocs Al Ruwais plant, but the company has neither confirmed nor denied it.

Prices for Group III exports from Al Ruwais remain unclear, but deducting costs from delivered prices yields unchanged estimates of $485/t-$520/t for 4 cSt and 6 cSt oils, basis FOB.

Prices have risen for Group II oils offered for shipments to the Middle East Gulf, with U.S. producers leading the fray last week, thereafter joined by Far East sources looking at discharges in two or more ports. Light neutrals are selling for $610/t-$635/t, 500N for

$765/t-$795/t and 600N for $820/t-$840/t, CIF Middle East Gulf. All of these prices are $50/t-$80/t higher than last week. Deliveries of smaller parcels of Group II carry premiums of $25/t-$60/t dependent on parcel size, delivery mode, and distance from hub storage in the U.A.E.

Africa

Another oddball enquiry has been issued for Baltic material to go into Oran, Algeria. The volume is not large but may refer to a heavier product such as SN900 or even bright stock from a south Baltic port. Other traffic to Africa from Spanish, Portuguese and Italian loadports has been quiet, but with turnarounds looming again for some of these supply locations, spot cargoes may be limited. Moroccan receivers are expecting one or more cargoes in February from Iberian ports and/or Italy.

A shipment to Libya from Greek refiners may reflect the start of a new supply route, perhaps, triggered by local problems within Libya.

West African majors are to be receivers of a partial cargo of three Group I grades ex-Northwestern Europe.

Nigeria continues to be exceptionally quiet for this time of year, with only the 10,000-ton cargo from the Baltic mentioned above. Companies that have been regular importers in the past said they are not yet in a position to purchase large volumes due to restrictions on finance.

A number of Nigerian sources vowed this week not to buy base oils at the recently increased prices because local lubricant markets cannot absorb additional costs, replete as they are with cheap products, some of which appear to be substandard.

Stocks of base oils in Nigeria remain relatively high due to the large volumes that imported at the end of December and in early January. There are rumors that traders have formed alliances with importers to take joint responsibility for base oils supplied in tank without letters of credit. These stocks are being distributed on a draw-down basis, limiting credit exposure, although it is unclear how naira are being converted into foreign currency.

One offer for Baltic Group I already loaded reflects prices of $718/t-$798/t light and heavy grades except SN900, which has been priced at around $855/t, and bright stock, which is $1045/t.

Baltic material shipped in flexitanks continues to be popular with a number of receivers, and in some cases smaller volumes of Group I can be supplied at lower rates than bulk supplies of the same grades thanks to reduced container freight rates into West Africa.

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