Distillate prices firmed the past week, reducing downward pricing pressure on base oils by improving the returns that refiners stand to gain if they shift feedstocks to fuels production.

Crude and feedstock prices held steady, with dated deliveries of Brent crude posting at $62.20 per barrel yesterday, now in respect of April front month settlement, while West Texas Intermediate was at $54.10/bbl for March settlement. ICE LS gas oil has traded in a relatively narrow range, rising slightly to $580.00 per metric ton for February front month.

The above prices were taken from ICE London trading late Monday.

Europe

Prices for API Group I exports from Europe remain under pressure as much of typical demand from West Africa, the Middle East Gulf and the West Coast of India turns to alternative supply sources. Values for light solvent neutrals dipped on the high end and are now between $580 per ton and $595/t. There were unconfirmed rumors early this week of buyer offers for SN500 falling $25/t to $30/t, but seller response appears to have been muted, so SN500 prices here remain at $580/t-$620/t. Bright stock is also stable at $810/t-$845/t.

The above levels refer to large cargo-sized parcels of Group I sold on an FOB basis ex mainland European supply points, always subject to availability.

Prices for Group I sales within Europe continue to weaken, with sellers expressing frustration at the low levels of offtake. Some sellers claimed that they see signs that demand could pick up early this month, but many buyers are still on the fence, watching developments such as the demand balance between Group I and Group II.

February prices have been discounted to encourage sales of Group I oils that have been in storage for two months or more. These inventories must be moved to free up space for replacement material that is contracted for delivery.

The differential between intra-regional prices and exports fell slightly to 65/t-85/t.

European Group II markets have now gone long, and an oversupply situation is growing and picking up pace as further quantities of Group II base oils hit an almost saturated marketplace. Group II prices are under pressure as a result, although the selling levels attached to Group II grades within Europe are significantly higher than comparative numbers in other global markets. With Europe being a target for Group II production which had formerly remained outside these boundaries, there is now a surplus of availability causing ructions in an otherwise ‘disciplined’ market.

With the large potential increase in availability of Group II about the enter the market from the new European production in Rotterdam, perhaps the timing for this new venture could have been better, although sources have reconfirmed that the local production will initially only replace material which has currently been imported, thereby not causing a massive increase in the amount of Group II grades to be sold around the European markets.

Prices are adjusted lower this week with FCA and truck- or barge-delivered values for 100 neutral, 150N and 220N at $845/t-$875/t (745/t-780), and 500N and 600N now selling at $935/t-$970/t (820/t-855). These levels apply to Group II oils with full and partial slates of finished lubricant approvals as well as those without approvals.

Group III availabilities appear to have overtaken demand n the European arena, although sources maintain that business is brisk with healthy demand for February supplies of these grades. Inevitably prices have come under some pressure, as the European scene starts to mimic other global regions which are experiencing high levels of competition from a variety of sources.

Non-approved and partly-approved grades are affecting the market by providing buyers with lower priced options to use these grades wherever possible thus moving away from a situation in which only fully-approved material was primarily available.

Prices in respect of partly-approved Group III grades are trimmed lower this week between 720/t-740/t in respect of 4 centiStoke grades, with 6 cSt grades between 750/t-770/t, and 740/t-760/t for 8 cSt base oils. Prices are in respect of FCA northwestern Europe sales.

Fully-approved material holding ACEA and European OEM accreditation have also come under pressure with levels for February slightly lower between 855/t-890/t for 4 cSt, 880/t-900/t for 6 cSt and 860/t-895/t for 8 cSt, all on an FCA basis at Antwerp-Rotterdam-Amsterdam.

The prices above do not reflect prices for material which is delivered in bulk cargoes to large or major buyers, which may be lower.

Baltic and Black Seas

Baltic reports contain news that prices appear to have eventually started to react, with levels coming sharply lower after remaining relatively stable for some weeks. There are a number of cargoes moving out of the region for Antwerp-Rotterdam-Amsterdam and the east coast ofthe United Kingdom, but no confirmation as yet for the rumored movement of a 6,000 tons cargo from Baltic to the United Arab Emirates. There are tentative suggestions that a further large cargo has been nominated for Nigerian receivers, with load dates around Feb. 10 to 15.

Sellers in the Baltic have expressed fears that with growing avails of mainstream Group I material, that they may be limited in placing spot cargoes into Antwerp-Rotterdam-Amsterdam and U.K., although with Russian export prices there is still an advantage to be had by using base oils loading out of the Baltic.

FOB levels are moved lower to around $565/t-$585/t in respect of SN150, along with SN500 almost in a similar range between $555/t-$585/t. SN500 has been priced below SN150 at the low end of the range. Bright stock ex southern Baltic is altered slightly but remains in demand and is therefore assessed between $805/t-$835/t FOB depending on quantity and spec loaded.

Black Sea and East Mediterranean regions report a mix of trade with a small number of Russian exports making their way out of Azov into Gebze, Turkey, in Turkey. Uzbek material has also been touted around Turkish receivers but due to both quality and price, offers so far have been declined.

Mediterranean sources have indicated a couple of cargoes moving into Derince and Gebze, Turkey, during February although final details of quantities and grades have not yet been disclosed. Turkish sources confirm that prices in respect of these Mediterranean avails have been ‘adjusted’ and are now pitched at acceptable levels to accommodate imports. CFR/CIF prices for the two main grades SN150 and SN600 are estimated at around $585/t and $610/t respectively.

Prices for supplies of Group I base oils FOB ex Azov are between $565/t-$580/t for quantities of SN150 with SN500 between $575/t-$595/t. The large parcel loaded STS ex Kavkaz, Russia, for Singapore and was around 16,000 tons of SN500. The price in respect of this grade was estimated to load STS at around $545/t.

Middle East Gulf

Red Sea trade includes the usual raft of loadings ex Yanbu and Jeddah with Group I and Group II grades forming export quantities from Saudi Arabia. The enquiry for supply into Sudan appears to have been covered locally.

Iranian exports appear to have been halted with no news from sources regarding quantities of SN500 coming out of the southern Iranian ports, moving wither to the west coast of India or United Arab Emirates. Local sources in U.A.E. still reckon that there are small parcels moving across the Straits but no confirmation of any movements can be gleaned from the market at this time. Notional prices for Iranian material are put at around $620/t CFR Sharjah.

There are talks of Group I imports being evaluated sourcing from U.S. Gulf Coast, USEC and Black Sea, and in addition the cargo ex Baltic has been mooted by receivers in U.A.E. as a possibility, although no positive news has been established regarding this cargo as yet.

Saudi Arabian Group I cargoes are also confirmed for receivers in Fujairah and Dubai, these being in addition to Group I grades going into Omani receivers.

With the open arbitrage being marginally in favor of European supplies of Group l, one cargo is being offered ex Mediterranean into U.A.E., but latest news on this possibility is that U.S. material may be lower in price, although lead time on delivery may be a negative element for this supply.

On the export side, Middle East Gulf sourced Group III grades are primed for large cargo movements into China and India with all three grades being deployed into these markets. In excess of 30,000 tons of these grades loading ex Al Ruwais, U.A.E., has already been booked for February, perhaps with more to follow. The Turkish cargo was loaded towards the end of last week and should arrive into Gebze around early March.

Notional FOB prices for Group III grades are moved lower this week given that selling prices in destination markets are all deemed to be down from levels established previously.

Levels are now re-assessed between $750/t-$800/t ex Al Ruwais and Sitra in respect of 4, 6 and 8 cSt partly-approved base oils. Eight cSt grades moving to India and Far East will produce lower netback values due to lower selling prices. Branded material under the Neste banner, which emanates from Sitra refinery, and which holds full European ACEA approvals, is also adjusted on a netback basis to between $905/t-$945/t for all viscosity grades moving to European, U.S. and other western markets.

Prices refer to notional FOB levels established on a netback basis using published freight rates, local selling prices, and additional notifications of bulk CIF/CFR cargo prices from various representative and reliable sources.

Group I base oils still appear to hold sway in the Middle East Gulf markets with some players suggesting that without a high viscosity grade such as bright stock, Group II base oils are lacking in suitability for many users based throughout Middle East Gulf regions. However, Group II grades sourced from Far East and U.S. carrying full OEM approvals are being dispensed ex hub within Middle East Gulf either on a basis of FCA or delivered by truck or flexies.

Prices in respect of these base oils are tempered lower this week, since the global oversupply situation is contributing to lower selling prices in all markets, including Middle East Gulf. Prices are now assessed between $960/t-$995/t for light grades and $1,025/t-$1,045/t for 500N and 600N.

These prices refer to small quantities of less than 25,000 tons per load, delivered around Middle East Gulf. Prices may vary with destination and distance from hub supplies.

Africa

North African supplies ex Mediterranean sources are lining up for Group I deliveries into Morocco, Algeria and Egypt, with bright stock being the main item for the coverage of the EGPC contract, which may be extended to cover further cargoes, or may be re-issued to take in an additional three months. The supply of bright stock into this location has been a stalwart in maintaining the balance of supply of this grade around the Mediterranean, due to alternative markets such as Nigeria, opting to import large quantities of bright stock from U.S. sources.

In West Africa markets an additional Baltic cargo is awaiting final confirmation but further to this supply it would appear that another large parcel ex U.S. Gulf Coast may be being organised for March arrival into Apapa.

The Ghana tender is believed to have been covered by the incumbent physical supply source and will be delivered later this month.

Group II grades have again been the talking point for some Nigerian receivers, since with attractive prices versus Group I grades, and the quality advantages attached to Group II base oils, there are compelling reasons for some receivers in Nigeria opting to go down this route. There are drawbacks, including handling and accessing suitable storage for these grades, but these are not insurmountable and the economics in themselves may pave the way for the ingress of Group II into this traditional bastion of Group I base oils. Some sources are commenting that the advantages are limited since there are no heavy vis grades which can substitute for bright stock or SN900, but there may still be scope for using the Group II slate.

In the meantime however, large cargoes of Group I base oils are still fundamental to the Nigerian and other West Africa markets hence

CIF/CFR prices in respect of Group I base oils arriving into Nigerian ports are paramount.

Numbers are assessed in ranging between $720/t-$745/t for smaller quantities of SN150, with heavier material SN500 between $725/t-$755/t along with bright stock remaining between $925/t-$945/t. SN900 is indicated at between $775/t-$800/t CIF/CFR.

These prices refer to large cargoes in excess of 6,000 tons total delivered into Nigerian ports such as Apapa or Port Harcourt.

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