However the background for base oil prices in Europe may be changing due to an unforeseen spike in crude oil prices caused by the rupture to a main pipeline carrying North Sea oil and gas to United Kingdom refineries. The pipeline, which was recently sold by BP to chemical giant Ineos, is 45 years old and may be expected to experience malfunctions of this type from here on in. Twenty percent of the supplies from this pipeline go into the Ineos chemical plant at Grangemouth, while the remaining 80 percent is distributed by secondary pipelines and ocean transport to other refineries around the U.K.

This problem had caused dated deliveries of Brent crude to rise to around $65 per barrel in Monday, but the price retreated to $63.45/bbl in late Tuesday trading in London for February front month settlement. West Texas Intermediate crude traded at around $57.50/bbl for January front month. ICE LS Gas Oil levels rose this week to around $565 per metric ton, still for December front month.

Europe

European base oil prices may be largely unaffected by the pipeline disruption, and it is certainly too soon to gauge any kind of effect. API Group I exports remain stable to firm, with suppliers still trying to boost offer prices. FOB prices, however, remain in the ranges published last week: $695/t-$730/t for light solvent neutrals, $775/t-$795/t for SN500 and SN600 and $845/t-$870/t for bright stock.

Rumors are circulating of some traders claiming to have obtained discounts of $50/t-$100/t for year-end sell-offs. In fact, some anomalies may take place, but generally the market appears resilient to markdowns as most sellers refuse to entertain such terms.

The prices above refer to large cargo-sized parcels of Group I supplied or offered on an FOB basis ex-mainland European supply points.

Local or domestic Group I prices remain stable with no indications of movements in either direction. Some suppliers have been keen to move material out of storage, and some spot trades have featured discounts of 20/t-25/t for prompt purchases, but again sellers generally are not desperate to move material at any cost. Supplies appear ample, and demand may have tailed off as blenders postpone purchases until after the New Year.

Local prices are unchanged this week, and the differential between them and spot export levels remains 50/t-70/t.

Group II prices are unchanged and buyers claim to welcome the predictability it brings to long-term pricing for finished lubricants. Light-viscosity grades are $680/t-$695/t and 500N and 600N at $775/t-$815/t. These nominal imported CIF prices are for large bulk cargoes being landed on a CIF basis into Antwerp-Rotterdam-Amsterdam. European FCA or locally delivered prices are around 770/t-800/t for light-vis oils and 850/t-885/t for heavier grades.

Europe has its own supply of Group III, and as imports from the Middle East rise, many buyers are considering this grade as an alternative to switching to Group II. In many cases, Group II grades cost more even if the Group III carries a full slate of finished lubricant approvals.

With only few cargoes of partly approved material arriving into European markets, and with some time between them, prices for bulk deliveries into Northwestern Europe are still assessed at $785/t-$825/t, basis CIF, for 4 centiStoke and 6 cSt grades. Domestic or local euro sales are 695/t-720/t, FCA Northwestern Europe. Group III grades with full European approvals are 790/t-825/t for 4 and 6 cSt grades and 765/t-785/t for 8 cSt, FCA Antwerp-Rotterdam-Amsterdam.

These prices refer to ex-rack sales or truck delivered quantities of Group III base oils and are not to be confused with large bulk cargoes delivered to majors and distributors.

Baltic and Black Seas

Reports from the Baltic describe a number of cargoes being planned to lift material on an FOB basis and also deliver CIF during the second half of December, perhaps suggesting that sellers are trying to lower inventories. Sellers do not deny this, but they insist prices have not been compromised. Six or seven parcels of ranging from 3,000 to 6,000 tons are being worked to move into Antwerp-Rotterdam-Amsterdam, the east coast of the United Kingdom and even into Turkey.

The missing part of the supply jigsaw appears to be the completion of negotiations on Nigerian cargoes to move out of the Baltic during December. Sellers said they prefer to deal with regular buyers in Antwerp-Rotterdam-Amsterdam and the U.K., rather than the flaky inquiries that emanate from West Africa, particularly Nigeria, which rarely come to fruition. Traders are still welcomed to bring their West Africa inquiries to Baltic suppliers, but dealing directly with receivers in Nigeria is no longer a preferred option.

FOB prices, which are often established on the basis of delivered prices netted back, are assessed slightly weaker this week, between $675/t-$690/t for SN150 and $735/t-$750/t for SN500. Values for SN900 are still assessed at $795/t-$820/t, while bright stock remains $885/t-$940/t.

Russian parcels of Group I base oils using the Volga river system appear to be drying up, perhaps due to ice on the river. A shipping report described a large parcel perhaps preparing to load out of Novo port, a location not normally associated with base oil trade. This may be a stop-gap move to replace the STS loadings at Kavkaz, Russia, where either a new replacement time charter vessel has not been fixed, or the river system cannot feed the requisite volumes of base oil for this operation.

Price(s) have not yet been established for this FOB trade, but the grades involved are reckoned to be SN500 and SN900. This large parcel of some 7,000 to 10,000 tons is due to be discharged into Sharjah.

The exchange rate of Turkish lira to U.S. dollars continues to be a barrier to base oil imports as blenders and traders within Turkey continue to rely on domestic production of Group I base oils. Contracted supplies moving into Derince, Turkey, from Greek sources have resumed, however, with one 3,000-ton cargo discharging promptly. Prices on an indication basis only are assessed at around $775/t-$785/t for light neutrals and $785/t-$815/t for SN600, CIF.

Middle East Gulf

Red Sea reports suggest that many Saudi Arabian exports are taking place during December, but the anticipated new avails of Group II from the upgraded Luberef plant in Yanbu is yet to come on-stream. A source in the Middle East Gulf surmised that technical problems may have delayed the project a few months.

Iranian exports during December have been confirmed, with new parcels announced for late December or early January, loading out of Bandar-e Emam Khomeyni and Bandar Abbas. It is notable that the sellers in all of these deals are the base stock producers and that direct trade with end receivers is the preferred modus operandi for these sales.

Previously, before sanctions, FOB sales were completed by United Arab Emirates traders and international traders who in turn sold to the same markets. SN500 and premium SN500 are the main export grades, and local sources report that SN150 and SN650 are absent because of lack of availability in Iran. Parcels are moving into Karachi and Mumbai anchorage. Premium SN500 from Sepahan Oil is still priced around $785/t-$795/t, FOB.

Group III continues to flow from the three Group III plants in the Middle East Gulf, with large cargoes of around 12,000 tons and 6,000 tons reported loading in Al Ruwais, U.A.E., for discharge into Mumbai. It is thought that these grades may have taken the place of Group II grades that were formerly imported into India as feedstock for the production of transformer oils. Those oils were supplied by Far Eastern suppliers, and in turn took the place of a range of light Group I solvent neutrals previously obtained from suppliers in the Mediterranean and the U.S.

Prices have been re-assessed upward with material from Al Ruwais at $735/t-$765/t for 4 and 6 cSt grades loading during December. Bahrain exports with approvals will netback to FOB values some $65/t-$90/t higher. FOB levels from Sitra and Al Ruwais are calculated using prices from material delivered on a CIF basis to major buyers and/or distributors netted back with estimated freight and marketing costs

Group II parcels have been offered from traditional Far Eastern sources, but prices have been decidedly high, perhaps due to the supply-demand balance in the Far East. The high levels are also ascribed to receivers in Middle East Gulf expecting some delay for the Yanbu project. Prices contained in offers have been heard between $725/t-$745/t for light-vis grades, $875/t for 500N and $895/t for 600N, all CIF Middle East Gulf.

These prices are in respect of cargo-sized parcels, while values for local U.A.E. availabilities of Group II on an FCA or delivered basis are now around $830/t-$865/t for 100N, 150N and 220N, with 500N and 600N at $945/t-$975/t, delivered. Prices are variable and depend on distances, quantity and method of shipment.

Africa

Another parcel from Northwestern Europe and the U.K. is fixed to land into Durban, South Africa, around the end of January, making this trade look more like a regular supply. Relatively high prices make the South African market for Group l, Group II and Group III extremely attractive to traders and suppliers from outside the region. A local distributor is required, though, and setting up a supply chain can be extremely complicated due to pressure on storage and distribution channels.

West Africa receivers reported that the long-awaited cargo from the U.S. Gulf Coast has finally been loaded and that this parcel should arrive into Lagos around the end of December. There are a number of Nigerian inquiries being floated to suppliers in the Baltic, Mediterranean and the U.S. Gulf Coast, but some cannot be taken seriously since finance is not in place to satisfy sellers.

Because of being snubbed by many sellers, Nigerian receivers are trying to form cooperatives to purchase large quantities of Group I base oils from almost any source. It has been heard that some buyers have contacted potential suppliers in the U.A.E., India and Indonesia. Another problem has been that these receivers have been unrealistic when it comes to pricing, with bid numbers more $100/t below current market levels.

One large parcel is being offered out of Italy and Spain, and since this will be traded by a recognized supplier to the Nigerian market, this cargo will probably be loaded before the end of December.

Prices for material delivered into Nigeria are $878/t-$890/t for SN150, $927/t-$955/t for SN500 and $968/t for SN900. Bright stock with viscosity index as low as 85 is $1,023/t, while a VI of 90 costs $1,038/t. These prices refer to Group I delivered CIF/CFR to Apapa port, Lagos in parcels of at least 5,000 tons.

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