Crude levels are at their lowest for a number of weeks, and this scene is accompanied by political pressures building in the Middle East. If this is the reaction now, what would have happened without this false support? Dated Brent is trading close to $65 per barrel, and WTI marginally higher at just below $66, but showing all the signs of demand weakness and little resistance to new seasonal lows. From a feedstock viewpoint, low sulphur vacuum gas oil has retracted to levels well below $475 per metric ton, off the highs at $538/t seen only a couple of weeks ago, so reducing any netback pressures on API Group I base oils, assuming that the current prices are at positive contribution levels.

As has always been said, base oil prices simply do not respond quickly to rising or falling crude and product levels, or do they?

Perhaps the days have gone, when producers had the cushion of three to six months delay before they had to react, since now, buyers are far more aware. They are better informed as to the relative prices of crude, feedstock and final products, and this knowledge is far more rapidly disseminated.

Confusion still remains however, since whilst the downward pressure on pricing is on, base oil availabilities for Group I are not long, particularly in the Mediterranean and North African areas, and some grades are particularly difficult to find in any quantity. In this area for instance heavy neutrals are tight, with some players asking for premiums of $30 to $50/t for SN 500/600 grades over other solvent neutrals.

Prices throughout Europe for Group I grades are still being set at $780 to $810/t, basis FOB, but with the pressure on the high end of the spread, unlike last week, where the bottom end numbers were being pushed upwards.

In the Middle East Gulf region, some of the players who gambled on the market rising and stockpiled relatively large inventories of Iranian solvent neutral grades may be starting to waver, and are considering selling off large swathes of material, perhaps to avoid loss situations in the short or medium term. Prices FOBBandar Abbas-Bandar Imam Khomeinifor both SN 150 and SN 500 are now at levels approaching $770 to $800/t, for substantial cargo-sized quantities.

There have been rumours of offers being put on the table to move material from U.A.E. at levels approaching $760/t, but these are only hearsay. For the meantime the super-sized cargoes from Iran may stop, and we may see the more traditional small lots being sold into the west coast of India and U.A.E.

Russian material is starting to move through to the Baltics once again, and quantities of SAE30 and SAE10, along with some I-12, I-20, and I-50 grades, are dressing the shop window at the moment for buyers willing to play, but who will pay relatively higher numbers than would be expected for these qualities? At least they are flowing again, and this could increase pricing pressure on some suppliers in Northwest Europe. FOB levels are expected to be in the ballpark of $725 to $745/t for the SAE10 and SAE30, and perhaps some $20 to $25/t lower for the I grades.

Moving on to Group II/II+ business, for the imported materials the market has not moved, but as mentioned previously, the spotlight does not fall on these grades as much as the Group I base oils, so only time will tell if these also come under pressure to re-adjust to the overall changes in the market. The imported grades also form a wide price band, depending on grade, delivery and, an interesting development this week, on the promise of larger future consumption of these products.

Prices are still in the bandwidth of $850 to $980/t, basis delivered mainland Europe, but there have been inroads now to set up satellite storage locations in remote areas. Instead of importing into one or two main storage locations, smaller cargo lots will be imported into more distribution centres. This practice could ultimately produce a narrower pricing spread across the whole European mainland and beyond.

Group III prices have been rumoured to be moving upwards, perhaps reflecting the end of the initial promotional-pricing era. As these grades gain strength in the market, they should be able to repay the massive investments which went into the plants to produce them. The prices still form a wide range between $980 and $1,150/t, depending on viscosity and delivery method, on the notional basis of ex tank.

South and East African areas have been relatively quiet this week with no further news of prices moving in either direction.

West Africa has been notable by a lack of any sort of occurrence, and may continue in this manner whilst local importers wait to see if European and U.S. prices will fall, providing them with some leeway to start negotiating new cargoes for the region. Prices will still remain high compared to Europe and other parts of Africa, but it is pure guesswork to establish levels until it is known when these parcels are underway, or at least negotiated on an FOB basis.

A confusing market for this week, as witnessed when talking to one supplier, who insisted that his market was short, and hence prices should rise, to another producer, who has every excuse to be short of base oil, who remarked that there was plenty of material in the market, and that demand was not yet returning as had been forecast. The EMEA market remains somewhat of an enigma.

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.