Dated deliveries of Brent crude posted yesterday at $77.70 per barrel for November front month, around the same level as last week. West Texas Intermediate moved downwards a couple dollars to $68.35/bbl for October settlement. These levels look fragile amid expectations of crude supply lengthening and a downturn in demand from principal users in Far East.

ICE LS gas oil fell to $684 per metric ton for September front month, $10/t lower than last week. These prices were published in late London ICE trading yesterday.

Europe

European Group I export prices weakened this week as demand remained sluggish demand and supplies of all grades more than ample. Some sellers are keen to move barrels either to free up storage for replacement stocks or to keep trade going. Buyers appear to have picked up on this attitude and made counter offers that were accepted foe prompt loading.

Light solvent neutrals are adjusted downwards to between $720/t and $740/t, while SN500 and SN600 softened to $795/t-$820/t. Bright stock is now selling at $865/t-$895/t depending on quality and specification. Sellers were keen to point out that large quantities of bright stock for export sales to regions such as West Africa are still scarce, and making up required cargo quantities can sometimes incur a two-port load.

Above prices refer to large cargo sized parcels of Group I base oils FOB ex mainland European supply points, always subject to availability.

Local sales of Group I base oils within Europe have seen sales of these grades diminish over the last six months, with moves for buyers looking at converting at least some blend stock to Group II grades. This activity will probably continue to affect the Group I trade throughout Europe, before demand eventually flattens out. Prices have responded by being weaker than expected after the summer period, and although some blenders are still continuing to purchase larger quantities of Group I base oils, they are buying less often than previously.

Prices are being still maintained, but with a growing sentiment of more product becoming available and demand becoming softer, these levels may be set to decline over the next period. It is emphasized that the overall effect of lower Group I sales is minimal at this time, with some players saying that they even expect offtake of Group I base oils to increase over the next couple of months.

Due to the reduction in export pricing this week, the differential between local prices and export numbers is expanded slightly, and is assessed between 95/t-130/t.

Group II markets throughout Europe are alive and kicking with excitement growing with the advent of domestic production on the near horizon. However sellers are commenting that they expect few changes in the actual markets after the initial production of Group II grades from Rotterdam, since much of the demand for these grades is being covered by imports from the U.S. and Far East up until now, this process continuing until after production is fully established.

Demand is strong for material available at this time, with markets in balance. Prices therefore appear to be relatively stable, with no suggestions, at least as yet, from producers that source increases will be applied to recover the small upward adjustments to raw material costs. There also remains a tempering effect with comparisons being drawn against Group I levels, and it may be the case that with lower Group I numbers, Group II marketers are content to retain price levels at current standards.

FCA and truck/barge delivered prices are hence being maintained with light-viscosity grades between $875/t-$920/t (745/t-785), and heavier vis 500N and 600N grades between at $955/t-$975/t (815/t-820).

Group III trades are steady with healthy demand during September and October. For partly-approved imported material FCA prices remain unchanged for September supplies. Levels are assessed between 765/t-770/t ($885/t-$895) in respect of the 4 centiStoke grade, with 6 cSt material being offered at 775/t-780/t ($900/t-$910) and 8 cSt at 785/t-790/t ($910/t-$920).

Group III base oils carrying full ACEA and European OEM approvals may be priced at a premium but buyers are mentioning that whilst they accept the differential, they are only too aware that this premium cannot be punitive. Many sales of fully approved Group III grades are being made at levels much closer to the prices being offered for partly-approved material, although there is open debate as to whether the partly-approved prices have gained momentum whilst the fully approved levels have remained relatively stable.

Prices for the fully approved base oils remain assessed between 795/t-810/t in respect of the 4 centiStoke grades, 6 cSt material around 800/t-820/t, with 8 cSt at around 810/t-825/t, these prices being on the basis of levels FCA Antwerp-Rotterdam-Amsterdam.

Prices are based on ex-rack or truck delivered smaller lots of Group III base oils, and do not reflect prices for material which is delivered in bulk cargoes to larger users. Prices in respect of those trades may be considerably lower than the levels detailed above.

Baltic and Black Seas

Baltic trade for base oils is brisk this week with a number of completed deals and also an increase in the number of enquiries being floated on the market. There are fresh enquiries for parcels of Russian export Group I grades to move into Scandinavia and the United Kingdom, in addition to the regular barrels being shipped into Antwerp-Rotterdam-Amsterdam. Nigerian receivers, through traders, have issued two enquiries for large cargoes for either late September or early October loading out of the Baltic ports, although the composition of these cargoes keeps changing with various combinations of grade splits.

FOB prices for the main grades appear to be stable, although sellers have commented that Baltic prices have been traditionally lower than mainstream European levels, and hence remain so today. Price levels are unchanged and remain assessed at around $680/t-$700/t for SN150, and between $755/t-$775/t for SN500. SN900 is indicated around $795/t, with various quantities of bright stock around $840/t-$855/t FOB.

Black Sea base oil trade is slack with a distinct void being created by the economic problems within Turkey. Russian exports into Turkey are few, with some sources indicating that there may be finance problems with the issuance of letters of credit from local Turkish banks. It is rumored that added confirmation from prime European banks is now being requested, thus increasing the costs of transacting the trades even further.

There are a couple of Group I cargoes into Turkish ports from the Mediterranean identified this week, perhaps indicating that receivers have managed to issue payment arrangements in respect of these parcels. Prices are served as indications only, and are assessed with light solvent neutrals at around $760/t-$775/t and SN600/SN500 between $830/t-$855/t CIF.

Reports from sources close to Kavkaz, Russia, have indicated that a large cargo of around 10,000 tons is to be loading within the next week or so, but as yet destination for this parcel has not been disclosed. It is considered that this cargo may go into United Arab Emirates, where local demand may not be covered due to Iranian Group I material becoming scarce.

There have been no reported Group III imports into Turkey this week.

Middle East Gulf

Iranian Group I base oils cargoes have resurfaced this week, but sources could only confirm two parcels, one of around 3,000 tons for U.A.E. receivers in Sharjah, and another 7,000 tons cargo for Indian buyers in Mumbai anchorage. These parcels are fewer than previously noted perhaps due to U.S. sanction threats, or perhaps because the local Iranian markets have higher demand for base oils and finished lubricants, which may be exported elsewhere.

Group I requirements may be covered with the Black Sea cargo ex Kavkaz, Russia, although there is still local doubt if this parcel is allocated to U.A.E. receivers. Other Group I cargoes ex Yanbu and Jeddah are also marked for discharge into Oman and U.A.E. although these products will carry approvals and higher specifications than Iranian or Russian imports.

There have been rumored offers for cargoes ex U.S. Gulf Coast in respect of Group I grades into Middle East Gulf, and additionally one source has commented that the arbitrage between Europe and Middle East Gulf may be opening up with FOB prices trading downwards from that source.

Other exports of base oils ex Middle East Gulf are predominantly Group III products from the three producers and a number of these parcels have been identified leaving the Middle East Gulf for India, Far East and U.S.

FOB prices are maintained this week at notional levels, assessed between $785/t-$810/t basis FOB Al Ruwais and Sitra in respect of the range of partly-approved Group III base stocks. Fully approved material carrying U.S. and also all European approvals from Sitra refinery is estimated to netback higher between $845/t-$875/t in respect of4, 6 and 8 cSt grades material moving westwards to Europe, U.S. and other American markets. 8 cSt material exported to Far Eastern markets may show lower netback levels due to lower local selling prices.

The numbers above refer to FOB levels established on a notional netback basis using published freight rates, and taking into account advised local selling prices, plus notifications of bulk CIF/CFR cargo prices from various sources.

Group II base oil offers have been heard coming in from Far East sources, those having been absent over the last few months as Far Eastern markets tightened due to turnarounds and also the ‘local’ production start-up from Saudi Arabia. Unapproved U.S. material has also been offered into Middle East Gulf, although prices and sources are not disclosed in relation to these offers.

Prices for Group II base stocks FCA or delivered by truck or flexi are maintained with various offers from Al Ruwais production being offered by truck at around $895/t in respect of the heavier vis grade. From local sources it is heard that Al Ruwais Group II base stocks are mostly used internally by the producers, although with potential production of around 100,000 tons per annum it is not clear how much Group II material is actually emanating from that source.

Prices in respect of fully approved light grades 100N/150N/ 220N are maintained around $995/t-$1040/t, with 500N/600N between $1085/t-$1125/t. These prices refer to Middle East Gulf delivered prices pertain to small quantities of less than 25,000 tons per load.

Africa

East African and South African traders have issued a number of enquiries for Group I grades to be supplied in flexies. This is the first batch of these enquiries heard of for some time, and although majors are moving considerable quantities of material into both South and East Africa, there is still a markets for the smaller traders and blenders which has to be covered from external sources. Also in East Africa there have been various clampdowns on inferior base oils and finished lubricants being imported into these markets, hence this latest round of Group I enquiries must meet certain specifications and standards to allow import licenses to be issued for the material.

In West Africa the market is quiets from an activity stance this week with only a few enquiries being issued for Baltic and/or mainland European sources cargoes for October arrival into Nigeria. There are also talks of further cargoes coming into Apapa from U.S. Gulf Coast, although no firm news has been gleaned re these parcels as yet.

Prices are maintained in respect of Group I base oils being currently landed into Nigerian ports, with light solvent neutrals SN150-SN180 assessed between $755/t-$785/t, SN500/600/650 between $830/t-$855/t and bright stock indicated between $920/t-$940/t. As indications only SN900 ex Baltic, or other very heavy neutrals available from other sources are assumed to be landed into Nigeria at around $865/t-$895/t

These prices are in respect of large parcels in excess of 10,000 tons total of Group I base oils delivered CFR or CIF into Apapa port, Nigeria.

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