Crude appears to have established new levels and shows few signs of retreating at this stage, although these latest movements are radically against all forecasts made earlier in the summer. Dated deliveries of Brent crude has risen to $83.20 per barrel now for December front month, a new four year old high, and around $2.20 higher than posted last week. West Texas Intermediate crude is also higher this week and is currently standing at $73.45 per barrel, but for November settlement. ICE LS Gas Oil has followed crude and now stands at $727 per metric ton still in respect of October front month. These prices were established from late London ICE trading on Monday, Oct. 1.

Europe

API Group I export prices across Europe are certainly firming, but the upper limit of these increases is not yet apparent. The markets have accepted that there is heavy pressure on base oil prices to rise, but the question remains, by how much? Price ranges have increased more at the lower ends and by smaller increments at the top ends of the spreads. Light solvent neutrals are adjusted to between $740 per metric ton and $760/t, with SN500 and SN600 now between $810/t and $830/t. Bright stock is back in demand and also progresses to higher levels between $885/t and $900/t.

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

Local sales and domestic prices of Group I base oils within Europe have also been subject to increases, which some sellers have announced from Oct. 1, whilst others have commented that they are waiting to see how far crude and feedstock levels will eventually rise before announcing increases to monthly prices. However, they also add that they will not be waiting forever, and will be re-assessing the situation on a week-by-week basis. Demand for Group I base oils is not strong, and this may hinder some thoughts on increasing prices.

The differential between local prices and export numbers is difficult to assess this week, since both sets of prices are in a state of flux and this may continue for some weeks to come. A tentative assessment is made with domestic prices being around 80/t to 120/t higher than export.

There are rumors that some Group II producers are looking at applying source increases, and this will affect levels in the days and weeks to come. The extent of the increases is important, since sellers do not want to adjust selling levels one day, only to have to re-adjust again after a short period of time. Levels are anticipated to move upwards this week, and this report is awaiting confirmation from sources that levels could have been moved from Oct. 1.

Prices are tweaked upwards this week to reflect these moves for October sales. FCA and truck to barge delivered prices are assessed for the light vis grades to $885/t to $930/t (755-795/t) with the heavier vis 500N and 600N grades between $965/t and $985/t (825/t-830/t). It must be emphasized this may not be the final levels at which these base oils are now to be sold. One source advised that should feedstock costs escalate then further, increases will most certainly follow, and that current adjustments being made are not final, even for the month of October.

Group III prices are reported as stable at the moment, but with producers and distributors both keeping tabs on their local markets to assess any probable increases which may have to come for these grades. Some sources indicated increases have been, and are currently being made to fully approved Group III grades which may be able to withstand the incremental effects to a greater extent than partly-approved products still trying to assert a market position.

For the partly-approved grades, FCA prices are maintained at this point in time, with levels between 765/t and 770/t (U.S. $885/t and $895/t) in respect of 4 centiStoke grades, with 6 cSt material at 775/t and 780/t ($900/t and $910/t). Eight cSt material is priced at between 785/t and 790/t ($910/t and $920/t).

Fully approved Group III base stocks holding ACEA and European original equipment manufacturer approvals are moved slightly higher, to levels between 805/t and 820/t in respect of 4 centiStoke grades, with 6 cSt material between 810/t and 830/t, and 8 cSt at around 820/t-835/t, these prices on the basis of levels FCA Antwerp-Rotterdam-Amsterdam.

The prices above do not reflect prices for material which is delivered in bulk cargoes to larger users. Prices in respect of these trades may be considerably lower than the levels detailed above.

Baltic and Black Seas

Baltic trade appears as thin this week, with only a strange cargo from southern Baltic moving north to discharge into Riga, Latvia, This may be heavier grade base oils such as bright stock and may either be used locally in the region, or more likely used as a part cargo for a large export parcel moving to West Africa for example. The large parcel anticipated for Nigeria is still being negotiated. It is rumored that acceptance is not yet given locally in Nigeria, and this is holding up proceedings.

Routine trade into Antwerp-Rotterdam-Amsterdam and the east coast of the United Kingdom is also slow this week, with few shipping inquiries around the market for cargoes to be moved. Another unusual cargo was reported sold into Angola out of Baltic, a source with around 5,000 tons of base oils moving south. This location would normally be covered by material coming out of Portugal, and this instance poses questions.

FOB prices in the Baltic are reported as stable, but behind the front line sources have indicated that levels will be moving upwards due to refinery gate levels increasing at Russian refineries. These increases are reported as significant, which could mean that FOB numbers could be seen to rise suddenly in large tranches, which some are considering at around $50/t. With prices under review, rises in the Baltic will reflect the current increases for feedstock values. Prices are moved higher due to the reported increases which will affect material coming into tank over the next couple of weeks, and prices are now assessed at around $695/t-$720/t in respect of SN150, and between $775/t and $795/t for SN500. SN900 should now lie at around $820/t, with min 90 VI bright stock from southern Baltic around $865/t to $880/t FOB.

There is evidence of some Mediterranean and also northwest European cargoes considered for import into Turkish receivers in Derince and Gebze, Turkey, but no firm business announced this week. This may mean there are still considerable financial problems within the Turkish economy, which has seen the Turkish liras value plummet against other currencies such as the dollar, making imported base oils considerably more expensive than previously. Indication prices for these grades sourcing from Greece for light solvent neutrals are around $775/-$795/t and SN600 to SN500 between $855/t and $870/t CIF.

No new reports were issued regarding the latest Kavkaz, Russia, parcel, which was heard programmed for first half October, although another large 10,000 tons STS loading enquiry has been noted sourcing out of a Greek refinery, being re-loaded in Cyprus waters and it is considered that this parcel may be competing against the Russian exports out of the Black Sea. Ultimate destination was not established for this cargo, although United Arab Emirates sources claimed they know of this trade.

Middle East Gulf

Red Sea exports of Group I and Group II base oils were reported for October loading out of Yanbu, Saudi Arabia and Jeddah. These cargoes are mainly bound for the west coast of India and other Indian ports, although some material is understood to be discharging into Pakistan. A number of these parcels are very large, with more than one cargo estimated to comprise of more than 11,000 to 12,000 tons of base oils.

Iranian sources intimated that sanctions will not stop the export of base oils, since similar tactics will be adopted as when the previous Western sanctions were in place. Sources commented that with apparent continuing European support, and only the United States imposing full sanctions on Iran, they will be able to offer Iranian Group I base oils on an ongoing basis. One such cargo was loaded out of BIK during the last couple of weeks, using an Iranian-flagged vessel. This cargo is sold into the west coast of India, with a further large parcel of around 7,000 tons of Iranian base oils earmarked for receivers in Hamriyah, U.A.E., which may be another option for exporting material through United Arab Emirates based traders, with strong Iranian connections. The product can then be re-exported as United Arab Emirates origin, thus getting around the sanctions imposed on direct exports from Iranian ports.

Prices for the SN500 grade appear to firm over the past few weeks, at least since the last cargoes were identified as moving out from BB and BIK, and levels are now assessed at around $845 per metric ton to $865/t basis FOB.

Material originating from outside Middle East Gulf is also considered for U.A.E. receivers, with both Mediterranean and Black Sea-sourced Group I base oils assessed for delivery during the latter part of October or early November. There are also offers on the table based on U.S. Gulf Coast and U.S. East Coast base stocks, which are also being offered either solely, or in tandem, into the west coast of India. In addition, the regular contracted barrels of Group I grades from Saudi Arabia should also be included by the slate of Group I base oils being used in Middle East Gulf markets. The continuing demand for heavier viscosity Group I base oils looks to continue in these markets.

Group III base oils from Al Ruwais, U.A.E., and Sitra still figure large in exported base oil from Middle East Gulf sources.

FOB levels continue to show improving netbacks, with suppliers in Middle East Gulf advising increases to delivered prices in respect of October deliveries. Receivers in the west coast of Indian markets confirmed the increases are not punitive and were to be expected, given rising raw material costs. The new levels are not unacceptable, as seen from the large number of fixtures and inquiries to ship these grades from Al Ruwais and Sitra.

Levels are re-assessed notionally between $800/t-$830/t basis FOB Al Ruwais and Sitra in respect of 4 centiStoke and 6 cSt grades of partly-approved Group III base stocks. Fully approved base oils holding U.S. and European approvals from Sitra refinery are estimated to netback between $845/t-$875/t in respect of 4 cst, 6 cst and 8 cst grades material moving west; however, 8 cSt material exported to eastern destinations will 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 to CFR cargo prices from various sources.

There are few reports of imported Group II material coming into Middle East Gulf markets either from Far East, the U.S. or indeed, the Red Sea source in Saudi Arabia. Deliveries by land are expected to take place into selective buyers in Bahrain, Kuwait, and Jordan, but evidence of large bulk movements into Middle East Gulf appears missing.

Prices on basis FCA or delivered by truck or flexi, continue to move upwards with numbers in respect of fully approved light grades 100N to 150N to 220N are now between $1,040/t and $1,085/t with 500N to 600N between $1,100/t and $1,150/t. These prices refer to Middle East Gulf delivered small quantities of less than 25,000 tons per load, but with a total quantity of up to 300 tons per offtake.

North African trade reported a number of base oil cargoes into traditional areas such as Egypt and Morocco with in excess of 10,000 tons of material finding its way into Alexandria, covering the Egyptian General Petroleum Corp. requirements as well as intra-company supplies of Group I base oils. The Morocco supplies are met by supplies from Italy and Spanish sources with a raft of various base stocks grades moving into Mohammedia during October. A smaller northwestern European parcel is also linked to supply into this port.

West Africa markets report another large Group I deal for supply into Nigeria. This supply is based on a two-port load, including one from the United Kingdom source followed by a further call in the Mediterranean to top-off. This cargo will precede the Baltic option, which is still under negotiation by other receivers, and may falter if prices start to climb from that source. Other options such as U.S. Gulf Coast are also looked at, but suppliers in that region are also looking at higher FOB numbers, which may stand in the way of completing this requirement.

There were no further reports or news regarding the speculative Group II imports for Nigeria, with some local blenders in Lagos, Nigeria, disappointed this supply may not take place in the foreseeable future.

Prices in respect of material moving into Apapa moved upwards this week on the basis that current FOB levels are going in that direction. With deals still to be completed, new levels may apply to offers made from here on in. Group I base oils are therefore assessed with levels for light solvent neutrals SN150-SN180 at between $775/t and $795/t, SN500 to 600 to 650 between $845/t and $870/t and bright stock landed between $940/t and $965/t. SN900 out of the Baltic, as an indication only is priced at $875/t-$900/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.