Solvent neutral grades have just marked time this week, with the spread looking like $695 to $755/t, marginally higher than last weeks levels. The higher vis neutrals had been commanding the higher premiums.

Dated Brent crude is trading just under $73 per barrel, with WTI trying to play catch up at $71.50/bbl. More important are product prices in Europe, at seasonal and yearly highs. Low sulphur vacuum gas oil has broken through the $500/t level FOB, not just as a result of its relationship with base oil, but also due to demand as a low sulphur alternative to some fuel oil. Nonetheless, as a principal feedstock this will certainly impinge on base oil netbacks, and with ICE gas oil futures racing towards $600/t, the message is clear.

With crude oil spiking back to the highs of five weeks ago, and only slightly fading from those levels at the moment, a pattern could be emerging of more base oil price rises to come. Crude levels have responded to news that the worldwide economic situation may be improving, and demand may be factored back into the equation. If this is borne out over the next few weeks and months, the base oil market could return to the heady days of some two years ago, just before the world and its banks came crashing around our ears.

API Group II/II+ prices have risen significantly, showing that the price hikes at manufacturing sources have eventually filtered through, although two producing sellers in the European market have stated that they do not directly price their material against material produced elsewhere, and that they adapt their pricing structure to reflect the local market trends.

Price ranges for Group II grades are wide, and it is important to draw distinction between the low vis and high vis grades. Prices have a spread from around $880/t at one end of the spectrum to around $1,025/t at the high vis end, for delivered prices which vary greatly due to logistics and location.

As reported last week Group III sales and usage in the Middle East Gulf is certainly growing. Statistics reflecting the end of the second quarter show that this is fastest growing grade coming into this region. With all the new production which will be coming on stream in the area within two to three years, these imports appear to be laying the groundwork for the takeover when the new units are fully up and running. Prices into this area depend a great deal on the size of parcels which buyers are taking, which can be anything from containers to bulk deliveries by sea. Delivered prices are in a wide range of $900 to $1,100/t.

South African business appears to be relatively buoyant, with calls and enquiries for supplemental cargoes to bolster the local production from Safor and Sapref in Durban. Whether these enquiries are for Group I or other grades is not established, but rumours emanate that Group I grades could be in short supply at the moment.

West Africa is dormant, no doubt taking stock of the increases in prices which have not abated in this area, with Group I heavy neutrals being assessed around $800 to $850/t, and bright stock now about $1,050/t, prices basis CFR at Nigerian ports.

There are a growing number of smaller enquiries being floated for Group I neutrals packaged in flexi tanks, for delivery through a number of ports in West Africa. These supplies are possibly for transportation into the hinterland, saving on double handling and storage costs at the port. The TEU container loads are being priced between $900 and $1,250/t CFR, depending on grade and country of import. This is an interesting development, following the same practice used in areas of the Far East and southern Asia which are inaccessible to sea-going cargoes. Reports are that all grades including bright stock can now be transported in this way with heated containers and temperature tolerant flexi-bags.

Innovation aside, the mainstay base oil scene is relaxed at the moment, but with the holiday gap in place, it looks like there could be a possibility for a quantum leap in prices when the market resumes to normal service towards the end of August.

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.