Crude has had a volatile week, coming off the highs of $73 to $74 per barrel with a vengeance at the weekend, falling to levels of around $67 for Dated Brent, and with WTI languishing around the $65/bbl mark. Dated Brent has rallied again this week and has come back up to $70/bbl, but WTI has remained dull at around $66.

This could reflect the differing economic recovery data coming from the markets in Europe and the U.S., but one aspect is apparent. Even refined products no longer respond immediately to crude movements, and most certainly this dispels any rumour that there exists a direct correlation between crude and base oil prices on a short term basis. This ethos had been the lifelong support which many buyers had lent on during times when crude was falling, but this market has decided otherwise.

The market has seen a little more activity this week, as some players return from vacation, but full steam ahead will not resume until September. If anything, prices are slightly firmer than last week, with the range narrowing, and with the lower end of the pricing spectrum moving towards the middle. Numbers in mainland Europe for API Group I solvent neutrals are being assessed in the band of $725 to $780 per metric ton, basis FOB. Bright stock has remained positive, showing highs of $955 to $1,000/t depending on cargo size and location.

The changes which occur week-by-week never cease to amaze, since the market has shown that there would appear to be more Group I material available this week than last week. Perhaps this reflects inventory releases which producers had been holding back or storing during the slowdown period in the summer. Group I solvent neutrals are plentiful in the Mediterranean, but in some parts of Northwest Europe there are few avails of any material whatsoever.

The Middle East Gulf region remains very quiet with only planned contracted cargoes arriving into the area. Prices can only be assumed to have stayed static from last weeks levels ($750 to $785/t basis FOB southern Iranian ports). Group III parcels have been arriving into this region, showing that these grades will be heavily relied on for future blending in this region, perhaps more so than Group II/II+ grades.

Prices for Group III material are pitched higher than European mainland, even with closer proximity to production centres, and lower freight and transportation costs, thus making the Middle East Gulf region a more favoured marketplace for the producers in terms of realisation and netbacks. Levels are established at anything between $950 and $1,150/t, depending on parcel size, grade viscosity, and delivery location. It is important to draw distinction between the relative costs of delivering these grades, since the region is widespread and carries different cost penalties for delivery, far more so than Group III supply in mainland Europe.

West Africa has had one cargo arrival this week, but nothing that hasnt been planned for some weeks and in this case for more than two months. The pricing for this arrival has not been disclosed as yet, since the customs declaration has yet to be made. How the contract was written, either fixed price at time of sale, or priced at the bill-of-lading date, could make an enormous difference of some $250/t to the landed price of the material, or to the traders margin.

Prices in this region have certainly moved up, and for any other cargoes arriving here, levels would reflect European mainland FOB levels, plus freight and margin: $860 to $915/t for SN 150 and SN 500/600, and up to $1,100/t for bright stock, all basis CFR West African ports.

There have been a number of enquiries from blenders and traders in South Africa and East Africa, for European Group I base oils, but these could be just price checking against the increases which have been imposed by the South African producers. European FOB levels plus freight for cargo-sized parcels will still not be competitive against local supplies, but smaller deliveries in containers could hold their own against road deliveries from Durban. Prices in the area are being seen at the high end of the European mainland spread, $760 to $800/t for solvent neutral grades, and bright stock around $980/t.

The Group II/II+ market in the EMEA region continues to show promise of future growth, even with the news that a large project has been back-staged by a couple of years, to take advantage of varying cost structures. Given that the markets (not just in Europe, but also in Central and South America) obviously have not been performing as per original forecasts, Chevron will push planned start-up of its 25,000 barrel per day Pascagoula, Miss., Group II refinery from 2011 back to 2013. Chevron said it will cover the market using amended production schedules at Richmond, Calif., to continue the progressive drive into the European market.

Other producers of Group II/II+ continue their dialogue and discussions with OEMs and others in the pursuit of approvals, which will pave the way for the new lubricant technology of this century.

Group II/II+ prices do not appear to move in the same way as Group I, perhaps because the majority of Group II material is supplied under contract, thus levelling out and spreading larger price increases over a greater time. Prices are deemed to lie in the range of $890 to $1,050/t ex tank, very much depending on grade vis, and area of delivery.

Its a summertime market, but without the prospect of real demand kicking in after the recess, as we would have seen in years gone by. With economic uncertainty still very much to the fore, but also with a bullish petroleum products market, producers are keen to maximise whatever base oil production can be slotted into a fickle EMEA market.

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.