A further saving grace in the form of falling crude and feedstock prices enabled producers to adjust prices without perhaps moving into negative contribution territory. Many refiners comment that the material which is currently in tank was priced against higher cost feedstock and does not necessarily mean that positive contributions are now achieved.

Crude and feedstock prices fell again during the last week in response to a growing awareness there may be an oversupply of crude coupled with weak demand from the main purchasing economies such as China and Japan. Prices retreated by some $4 per metric ton to $5 per barrel, with dated deliveries of Brent crude recording levels at $66.60 per barrel in respect of January front month settlement. West Texas Intermediate crude also moved lower to $56.50 per barrel, now also for January front month. Forecasts for crude altered significantly in the last few weeks, moving from a strong bullish position with traders looking at $100 per barrel for next year, to a weaker perception of where prices are going with forward numbers being touted below $60 in respect of dated deliveries of Brent crude.

ICE LS Gas Oil also responded to the crude downturn with levels at $635 per metric ton for December front month, $35/t down from last week’s level. Prices were gleaned from late London ICE trading on Monday, Nov. 19.

Europe

Group I export prices throughout Europe are seen as weaker, although not many deals were completed to absolutely confirm new selling levels. Prompt selling is gathering pace with sellers looking to clear inventories prior to year-end. This process is slower and more difficult than in previous years, due to lower demand from regions such as Middle East Gulf and West Africa, where alternative sources can supply Group I material at lower prices than European barrels. With year-end only six weeks away, sellers are fretful of moving sufficient stocks.

Prices are showing weaker in offers this week, with light solvent neutrals seen and heard from various sources at between $635/t-$665/t, with SN500 and SN600 coming lower between $660/t-$680/t. Bright stock prices held up due to singular demand for this grade, but this week saw some much lower numbers offered, perhaps as an incentive to move other grades at the same time. Levels for bright stock are considered to lie between $840/t-$875/t. This downturn in pricing terms is purely geared to sellers trying to move material sooner rather than later, with no outlook suggestions that the markets may soon turn around.

Above-price levels refer to large cargo sized parcels of Group I base oils FOB from mainland European supply points, always subject to availability.

European Group I domestic prices are in the same boat as export prices, although for slightly different reasons. Buyers look to minimize inventories through December and are assessing requirements for December month, which in almost all cases are less than normal monthly offtake quantities. This increased pressure on sellers to move prices lower for December volumes, which is also affecting current prices for prompt sales of material on FCA basis. The effects have not been so severe or at least as noticeable as the export-offered prices, with sellers offering temporary discounts and in some cases retrospective adjustments to prices for November lifting.

The differential between local prices and export numbers is therefore greater this week due to exports moving much lower, whilst domestic levels are taking time to become aligned. This week shows domestic prices around 65/t-120/t higher than export levels.

Inevitably the Group I price movements eventually started to impinge on Group II prices where these products are purchased by the same blending operations. The discounting heard was not massive and was generally seen at between 10/t-20/t in respect of prices offered for December sales. The emphasis remains on forward sales of Group II grades for next year. Many blenders and sellers are discussing quantities and pricing in regard to contracted volume offtake which will be delivered from, or picked up from hub storage in Antwerp-Rotterdam-Amsterdam. No reports or news were released by the new producer of Group II in Rotterdam, and it is assumed that commissioning and production start-up before the end of the year is still in the cards, with commercial selling of the Group II base oils commencing during the first quarter of next year.

Prices are adjusted slightly lower this week with FCA and truck/barge delivered prices for the light vis grades, 100N, 150N and 220N, between $885/t-$930/t (775/t-815) and the heavier vis 500N and 600N grades between $960/t-$1000/t (840/t-875).

Group III prices show slight signs of weaker numbers, with oversupply looming particularly for part-approved base oils around the European market. Some much lower prices are touted by part-approved sellers, whereas in some cases sellers appear to be taking each other on to establish themselves in this ever expanding marketplace. Prices as low as 720/t in respect of some 4 centiStoke grades were confirmed. Partly-approved grades, FCA euro prices are re-assessed between 740/t-760/t in respect of 4 centiStoke grades, 760/t-780/t for 6 cSt material and 780/t-800/t for 8 cSt.

It would appear from comments received this week that part-approved base oils are in demand from those blenders using fully approved material, where both types of product can be used separately, but in combination.

Fully approved Group III base stocks holding ACEA and European original equipment manufacturer approvals are also unchanged at levels between 840/t-860/t in respect of 4 centiStoke grades, with 6 cSt material between 865/t-885/t, and 8 cSt at around 825/t-855/t, these prices being 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 FCA levels above.

Baltic and Black Sea

Baltic reports that buyers still stay away from this source due to mainstream prices in Europe being almost in line with current FOB numbers. With a lack of movement on Baltic prices, it is difficult to fathom how those traders and resellers based in the Baltic ports will be able to sell stocks which would have possibly been purchased some time back, at what would have been much higher prices. Some comments from sources indicated sellers would prefer to wait until the market recovers rather than sell at a loss. With cash flow and turnover important to these organizations it may be foolhardy to delay selling off in-tank inventories, since there are no current indications the market will alter course.

Baltic trades become more and more difficult to arrange into the deep-sea markets which were once the bread and butter for these supplies, due to the prices remaining higher than buyers will contemplate. Even regular contract and spot trades into Antwerp-Rotterdam-Amsterdam, Scandinavia and the United Kingdom have become remote., With plenty of Group I avails in northwestern Europe and the Mediterranean, Baltic barrels are replaced with mainstream supplies. These are priced at least on a par with Baltic levels, and in some cases, are more competitive.

Prices remain unchanged this week, with FOB levels maintained at around $625/t-$650/t in respect of SN150, with SN500 between $645/t-$675/t. Notional SN900 FOB prices are indicated at around $695/t, with bright stock from the southern Baltic between $825/t-$850/t FOB.

Black Sea trade remains dull. Turkey imports may be on the way back, since with higher local pricing, supplies of European Mediterranean Group I base oils are now competitive, and buyers appear to be able to navigate the banking system and exchange rates on a much improved basis than previously. Prices in respect of offers from Mediterranean sources are indicated at $685/t-$699/t in respect of quantities of SN150, with SN500/600 at around $710/t-$730/t. Small quantities of bright stock may also be included in supplies from Spain and Italy, which are reckoned to land into Gebze, Turkey, at around $885/t-$910/t.

The STS Kavkaz, Russia, operation remains quiet. With the river system now iced over for the winter, railed supplies are sold into Ukraine in increasing quantities at higher prices, which becomes obviously more appealing. However, sources in the United Arab Emirates still claim another cargo is being organized for either later this month or early December from Kavkaz, Russia. Indication prices only on basis of STS are deemed to be around $575/t in respect of SN500, with SN150 around $560/t.

An interesting enquiry was filed for a cargo to move from Yanbu in the Red Sea to Lattakia in Syria, this perhaps the first sea-borne base oil movement considered for the Syrian market since the start of internal hostilities and the ISIL invasion of the territory. In addition numerous large cargoes of Group I and Group II products from Yanbu are considered for the west coast of and southeast India, and also for supplies into U.A.E. receivers in Fujairah, Sharjah and Dubai.

Middle East Gulf

In Middle East Gulf trade, Iranian Group I cargoes are missing from the scene, perhaps indicating sanctions have started to bite, and that movements of all petroleum products may be hampered by the lack of suitable shipping prepared to risk the wrath of the U.S. administration. It is still not clear if the waivers granted to a number of receiving nations under the imposition of sanctions apply to only crude oil, or if they apply to all exports from Iran going into these locations. Since India was granted a six-month waiver, it may be feasible that Iranian cargoes of Group I base stocks can still continue to be sold and imported into that market, although finding foreign-flagged vessels to load and deliver these cargoes may still present a problem.

According to sources in the U.A.E., importing and re-exporting Iranian base oils has begun and will continue on a local trade basis, on the understanding that the material will be re-exported and not retained in U.A.E. for domestic trade or use. The whole picture is confusing and misunderstood, with few people actually aware of what the rules are, and how they are to be applied.

The same source also claims that the loading out of the Black Sea (STS Kavkaz, Russia) is going ahead, although no vessel has been nominated to load whatever quantity is being considered.

Price indications in respect of SN500/600/650 from various sources is assessed at around $720/t CIF/CFR U.A.E.

Notional FOB rates in respect of Group III base oils exported from Middle East Gulf ports remain unchanged from last week. Also, suggestions that prices were to be moved upwards appears to have been quashed, since the market may be facing another situation of over supply with some markets. For example, in Far East managing to be covered by local supplies, which have become more available over the last few weeks. The markets in the United States and Europe are possibly marking time at the moment, with the hint there is more than enough product to go around, and that buyers have plenty options, particularly for partly-approved material.

Notional FOB levels remain between $815/t-$850/t FOB Al Ruwais and Sitra in respect of 4 centiStoke, 6 cSt and 8 cSt partly-approved base oils moving into the western markets. Fully approved material marketed by Neste holding full U.S. and European approvals, from Sitra refinery, remains netback between $865/t-$895/t in respect of 4 centiStoke, 6 cSt, and 8 cSt material, which moves to European, U.S. and other western markets.

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

There are suggestions some of the Yanbu supplies coming into the U.A.E. markets will be Group II grades, although local sources could not confirm either way. Group II base oils in U.A.E. where smaller parcels are sold locally on basis FCA or delivered by truck or flexi are priced at the same levels as last reported.

Levels in respect of fully approved light grades 100N/150N/ 220N are estimated to be priced between $1,085/t-$1,030/t, with 500N/600N between $1,155/t-$1,195/t. These prices refer to Middle East Gulf-delivered small quantities of less than 25,000 tons per load, but often with a total quantity of up to 300 tons per offtake. Prices may vary with destination and distance from hub supplies.

Africa

Apart from Turkish imports, a number of cross-Mediterranean cargoes were identified moving from suppliers in Italy, and Spain going into North African ports. Egypt and Morocco feature high on the list for supplies of Group I base oils, with bright stock being one of the main requirements for Egypt.

West African sources report yet another large U.S. cargo, this time out of the U.S. Gulf Coast. Some 13,000 tons will load for Apapa, this being in addition to the U.S. east coast cargo that was identified last week. This means that some 25,000 tons of total Group I base oils will arrive into Lagos in the next three to four weeks. It is relatively surprising to see Nigerian buyers moving early to purchase cargoes before the notional year-end sale commences. One party suggested that the prices were too attractive to dismiss, and that the cargo would have gone elsewhere given other options, such as destinations in either Middle East Gulf or the west coast of India.

Baltic and northwestern European material are still missing from the Nigerian supply slate, although a large Mediterranean cargo was mooted for loading during early December.

Nigerian CIF/CFR price levels remain indicated between $675/t-$700/t in respect of the light solvent neutrals SN150-SN180, with the heavier grades SN500/600/650 between $695/t-$720/t and bright stock at around $885/t-$920/t. SN900 ex Baltic, whilst not being offered at this time, as an indication only will be priced around $730/t-$755/t CIF/CFR.

These prices are in respect of large parcels of minimum 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.