Accompanying these new crude numbers are feedstock values at a peak not witnessed for two years, with low sulphur vacuum gas oil trading Monday at $555 per metric ton, with potentially some way to go, and crude spiking again yesterday. ICE gas oil was breaching new limits at $655/ton for the front month of November. This could mean sharp rises for base oils of as much as $80 to $130/ton being added to current levels, assuming that crude and product prices remain where they are today.

When will this take place? It may take some time to filter through to all producers in the EMEA region, since there is always the base oil delay factor. But sentiment with most refiners is very strong that prices will have to move sooner rather than later.

A number of producers contacted have confirmed that they will be looking for higher numbers for their base oils at least from the beginning of November, particularly for the local markets in Northwest Europe and the Mediterranean. One seller indicated that any oil moving now, which had not already been contractually sold, would carry an immediate premium to prices talked last week.

There also seems to be a sudden extra demand within the market, with a large number of enquiries throughout the region from Iran to South Africa, West Africa, and also in the Baltic and Black Sea for Russian and CIS countries production. It appears that buyers are responding quickly to what they perceive to be a rising market, and are trying to move quickly to purchase all types and quantities of base oils before foreseen price hikes hit the market.

To establish pricing levels given the above scenario is somewhat difficult, but realistically prices are now being talked higher, perhaps some $20 to $50/t over immediate past levels.

Prices are therefore being put in the band of $790 to $835/t for API Group I neutrals. Bright stock is being assessed at around $910 to $965/t. All these levels are basis FOB mainland Europe, Mediterranean and North Africa. These prices are in a state of flux, and are not remaining fixed for any length of time.

Mention was made last week of Iranian prices moving up, and this has been confirmed by two major producers in Iran. They are now looking for levels closer to $875/t for lots of SN 150 and SN 500, basis FOB southern Iranian ports in the Middle East Gulf. There have been reports of a large Iranian cargo of some 10,000 tons of SN 500 being offered FOB Singapore at levels around $885 pmt, but quite why this material is being offered on this basis is not clear. It could be a payment-defaulted cargo which was bound for China or environs. UAE is still importing more quantities of the Iranian Group I material, along with India of course.

Group II/II+ base oils will naturally follow the upward trend, along with Group III grades. Pricing on these grades is more difficult to analyse, as it tends to be reviewed on a monthly or quarterly basis rather than with spot sales. Adjustments may take longer, particularly for the imported grades which will already have their landed values stamped on the cargoes.

Group II/II+ prices are reported at levels between $875 and $990/t for mainland Europe, with Group III grades being in the traditional wide range of $900 to $1,120/t, same basis.

Both Group II and Group III base oils have been making headline news with large cargoes moving into India from Far East producers. Whilst this is not strictly within the bounds of the EMEA region, this product movement has long term effects on other imports into UAE and other Middle East Gulf states, all of which have been importing more and more of these new grades over the last few months.

In West Africa there have been dozens of enquiries for base oils, some are real and of course some are less so. Nevertheless there are more new names appearing as potential importers, not only to Nigeria, Ghana, Senegal and Cote dIvoire, but to other less likely locations where the local market may have been traditionally supplied by the large importers located in the major centres in the past.

Prices for new Nigerian imports are now being seen around $885 to $935/t for SN150, and SN500/600, whilst bright stock is now around $1,000 to $1,050/t, depending on quantity and overall cargo size.

Russian material is flowing in quantity, with some large cargo quantities of heavy neutrals reportedly on the way to the Baltic coast. Since material coming through the system has already been purchased from the trade houses, and is always subject to fixed transport and storage costs, it could be December before price increases for this material are effective. Unless traders take advantage of European price movements to hike the Russian supplies to comparative levels, there should be a month where Russian and Belarus exports will be very price-competitive versus mainland European production. Levels are expected to be around $765 to $790/t for Group I material offered for first half November from Baltic ports, depending on quality and source.

The EMEA base oil market is moving positively, both on prices, which should give a fair return to refiners and producers, and on demand, which should be seen as a lift for blenders and end users. Whether these are sustainable long term trends, or merely bubbles, time will tell.

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.