It also appears that availability is increasing for API Group l, II and III oils, creating potential for oversupply that could exert more downward pricing pressure.

The good news this week for both sellers and buyers is that crude and feedstock levels have fallen back from their recent highs with dated deliveries of Brent crude briefly moving above $86 per barrel at the end of last week, this crude is now posting at $83.50, marginally higher than the level reported last week. This price is in respect of December front month. West Texas Intermediate crude also spiked but has now fallen back and is currently standing at $73.90 per barrel, for November settlement. ICE LS Gas Oil remains at a high level of $735 per metric ton still in respect of October front month. The high selling level for diesel may start to tempt refiners of base oil to divert production in favor of increased quantities of gas oil, limiting the quantities of base oil coming on to the market. These prices were established from late London ICE trading on Oct. 8.

Europe

The underlying firming sentiment which was coursing through the API Group I spot export market in Europe appears to have withered, with an increasing awareness of buyers that material may be going longer. Heavier vis grades are becoming increasingly available from export sources such as the Baltic and northwestern Europe, even with a couple of major turnarounds either underway or planned for this month. In some incidences over the past week prices were discussed at levels far below the ranges set in the last report. For example, light solvent neutrals now reckoned to lie between $685/t and $710/t, SN500 and SN600, have drifted lower and now range between $720/t and $745/t. Only bright stock maintained a relative degree of strength due to tighter availability for large parcels of this grade. Levels are held between $885/t and $910/t.

It appears that higher prices which were talked about by suppliers as a result of crude and feedstock increments could not be supported. Thats due to the shape of the market, with lower demand than expected and also an influx of material from various quarters. This increased availabilities for Group I grades. However, with diesel selling at $735/t and SN500 at a mid-range of $727.50/t, the rest is not rocket science. Above prices refer to large cargo-sized parcels of Group I base oils FOB from mainland European supply points, always subject to availability.

Domestic markets around Europe for Group I base oils saw some nominal increases imposed from Oct. 1. In many cases these increases were not implemented, but were deferred until a later date. This action appears driven by buyers declining the increased prices, whilst stating they could have alternative arrangements with other suppliers to take material at lower cost. The result seems to be that prices remained unaltered during the first week of October, with buyers relaxed in the apparent knowledge that numbers are not moving upwards, at least at this time. Sellers quietly commented they are up against growing availabilities of alternative sources for Group I grades. They are finding it extremely hard just to maintain prices at current levels.

The differential between local prices and export numbers is clearer this week. An assessment is made with domestic prices being around 65/t-90/t higher than export levels.

As far as this report is aware, no Group II producers have to date announced increased source or refinery gate prices. Throughout Europe there appears no shortage of actual avails for Group II grades, whilst a large number of blenders are receiving offers for term and contract supplies of Group II base stocks for the future. Prices vary for those buyers prepared to take large quantities of Group II base oils and others who may still be experimenting or making a slower transition from Group l. Incentives are offered to the larger purchasers who can guarantee large volume offtakes, especially going into next year and beyond.

According to one source, plans were in place to move prices higher from the beginning of this month, but those plans were shelved, with reviews to take place over the next few weeks. These moves may be in the interest of maintaining market share and retaining customers for the future.

Prices are maintained this week, with FCA and truck/barge delivered prices being assessed for the light vis grades, 100N, 150N and 220N, at $885/t-$930/t (755/t-795) with the heavier vis 500N and 600N grades between $965/t and $985/t (825/t-830).

Group III prices are also stable at this time, with current pricing being set for October sales. Sources indicated increased levels for fully approved Group III grades, although these were relatively small. They were made on a tentative basis, with sellers almost testing the market to assess acceptance. These prices are mainly in respect of contract buyers, some of whom may be receiving larger quantities of Group III base stocks in direct shipments, rather than the smaller spot FCA sector of the market.

In respect of partly-approved grades, FCA prices are again unchanged this week, with prices between 765/t and 770/t ($885/t-$895) in respect of 4 centiStoke grades, with 6 cSt material at 775/t-780/t ($900/t-$910). Eight cSt material is priced at between 785/t and 790/t ($910/t-$920).

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

The prices above do not reflect prices for material that 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 Sea

Baltic sales are growing, but perhaps not as quickly as the trains which are arriving from Russian refineries, each carrying 3,000 tons of Group I base oils. Availability within the Baltic increased, and buyers seek large cargoes to move out to take the pressure off inventories. West Africa, Far East, Middle East Gulf and India are all markets which may be open to Baltic sellers. This is because the large movement of material from Russian sources, resellers and distributors are willing to lower prices to achieve prompt sales. The price increases from some Russian refineries mentioned last week appear to only refer to lighter grades, with heavier SN500, SN900 and SN1200 becoming more available due to winter temperatures in Russia. Hence, they are more attractively priced to move to export.

Short-sea trade cargoes are also reported moving to Antwerp-Rotterdam-Amsterdam and the east coast of the United Kingdom, meeting regular contract supplies of Baltic base oils to these locations. These cargoes appear on the increase after a summer season lull. These movements have a quantitative and pricing effect on the northwestern European Group I markets, which are under pressure from internal supplies.

Prices are indicated as softer this week and are now assessed at around $640/t-$670/t in respect of SN150. The real change appears to be for SN500, with increasing quantities of this grade becoming available – sellers have moved prices lower to range between $665/t and $700/t. Meanwhile, SN900 is indicated at around $725/t, with min 90 VI bright stock from the southern Baltic remaining at around $865/t-$880/t FOB.

Black Sea trade remains dull, with few Mediterranean or Russian cargoes moving into Turkey. The country still reels from the latest problems concerning the downturn in the economy and the effects which that has had on currency exchange rates. Imported base oils have practically increased in price by some 25-30 percent. In addition to additive levels, that has had an obvious effect on finished lubricant prices within the country. Blenders are trying to utilize the domestically refined Group I base oils, which can be purchased in local currency. There is some evidence of Mediterranean and northwestern European-sourced Group I base oils finding their way into Turkish ports. Some sources commented some of these cargoes may be inter-affiliate transfers done by majors operating in Turkey.

Indication prices for the few commercial cargoes moving out of the Mediterranean into Derince and Gebze, Turkey, from Greece are now assessed at around $735/t-$755/t in respect of the light solvent neutrals and between $785/t-$810/t for the quantities of SN600/SN500, basis CIF Turkish ports.

Nothing was heard about the latest Kavkaz, Russia, STS parcel, which was heard of for first half October. With estimated prices for the Russian SN500 grade at around $625/t, a number of arbitrage options remain open and available. For example Middle East Gulf, Far East and India are all viable for this trade.

Middle East Gulf

The Yanbu and Jeddah trade continues on a large scale with a further 20,000 tons of base oils to be loaded out of these ports in the next couple of weeks. These are mainly bound for the west coast of India and also other southern Indian ports, with some material discharged into Pakistan. The make-up of these cargoes is not disclosed, but many will consist of both Group I and Group II base oils.

The United Nations has opposed the Iranian sanctions currently imposed by the U.S. and the next tranche, which are pending for November. Sources in Iran again confirmed that sanctions will not prevent the export of base oils, although some contacts in United Arab Emirates commented that it may be more difficult than previously since storage and berth availability is tighter than when sanctions were last imposed by the West. However, if margins are right then somehow these obstacles may be overcome. No cargoes are announced this week, although one parcel loaded out of BIK en route to Mumbai anchorage.

Prices for the SN500 grade may have weakened in the face of alternative supplies for SN500 being made available from outside the Middle East Gulf, with levels now assessed at around $820/t-$845/t basis FOB.

Material originating from outside Middle East Gulf is under consideration for U.A.E. receivers with Mediterranean, Black Sea, Baltic and U.S. sources, all in the frame for supplies of Group I base stocks. There are even offers for large parcels of product for delivery during December.

Group III base oil exports from Al Ruwais, Sitra and Ras Laffan continue unabated with FOB price levels being maintained for material from Sitra and Al Ruwais. Prices in respect of material issuing from Qatar are not disclosed since most of the material goes into the Shell system and does not appear as Group III or Group III+ sales in a direct sense.

Prices around the markets appear to be stable, with few suggestions or hints of changes. Reports last week of increases to delivered prices in India appear unfounded, with alternative sources suggesting prices remain stable and competitive against Group II supplies from Far East and Red Sea. These sources for Group II are some of the main competition for Group III sales in India, where both these types of base oil are interchangeable as TO feedstocks.

Levels are maintained on a notional basis between $800/t and $830/t 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 centiStoke, 6 cSt and 8 cSt grades material which moves to western destinations; however, 8 cSt material exported to eastern destinations will produce lower netbacks 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 material is arriving into Middle East Gulf markets from Far East, and Red Sea sources, but in essence the quantities are not large relative to Group I usage in the region. Sources say this will change over time as more blenders move over to production of higher specification finished lubricants as they will have to do, to comply with emissions and OEM engine requirements.

Local prices on basis FCA or delivered by truck or flexi, remain unchanged this week with numbers in respect of fully approved light grades 100N/150N/220N between $1,040/t and $1,085/t, with 500N/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.

Africa

North African trade sees a number of base oil cargoes moving to Egypt and Morocco with supplies met by sources in Italy and Spain, but there are also offers from Baltic and northwestern European sources for material to go into Algeria and Morocco.

The major importing Group I material from Europe into South Africa appears to have booked another large cargo to load out of Sicily in this case, possibly due to a maintenance turnaround at the refinery in U.K. which normally supports this trade.

West African markets are quiet at the moment after having booked the three large cargoes already on the high seas destined for Nigeria. There are a number of inquiries in the markets for material to load from the U.S. Gulf Coast and also for a large cargo rumored to be in excess of 20,000 tons to load out of the Baltic. This parcel will necessarily have either two or three port load – or load the majority of the cargo out of Ventspils, which does not normally figure as a base oil load port – but can accommodate larger vessels requiring substantial draft.

The prices in respect of the large Baltic parcel could be very attractive, or of course very profitable, or indeed both. Levels in respect of material already moving into Apapa port are maintained as previously reported, but new levels applying to future offers for a large 20,000 tons plus cargo may see levels being lowered by as much as $50/t. Group I base oils are currently assessed with levels for light solvent neutrals SN150-SN180 between $775/t and $795/t, SN500/600/650 between $845/t and $870/t and bright stock landed at $940/t-$965/t. SN900 from the Baltic, as an indication only is priced at around $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.