Group II and API Group III selling has been constant with prices steady in an otherwise stable market, with large quantities of imported material arriving into the European arena where prices and margins are perceived to be higher than those achievable in alternative global markets.

Prices for all base oils sectors have flattened out over the past week or so, although there have been reports of bids from traders and other interested buyers at exceptionally low levels, testing the market for any ‘real year-end bargains’. In the main, these have been declined by sellers, who have elected to maintain stocks for resale next year when prices may not be as low as bids received.

It has not been all negative news for producers because of a sudden and significant drop in crude and feedstock prices over the past month, particularly over the last ten days. dated deliveries of Brent crude has fallen to a new recent low, and having recorded a price of $53.40 per barrel, this crude now stands at $54.20 in respect of February front month. Simultaneously West Texas Intermediate crude has also dipped to post at $46.00per barrel, now also for February settlement. ICE LS Gas Oil has now fallen by some $40 per metric ton against prices last recorded in this report, to show now at $515/t, for January front month.

All the above prices were established from late ICE London trading on 21st December 2018.

Europe

European Group I export prices are left unchanged with markets slowing and reaching a point where no real deals are being talked for the rest of this year. There are some numbers being talked in respect of January barrels, but most sellers are content to wait to evaluate the scene after the New Year break.

Light solvent neutrals are maintained between $595/t-$620/t, with SN500/600 between $610/t-$625/t. Bright stock prices continue to remain between $800/t-$840/t. The prices mentioned in the last report which were substantially below these ranges appeared to represent ‘tongue-in cheek’ bids from a few opportunistic buyers which have largely been dismissed by sellers.

The above price levels refer to large cargo sized parcels of Group I base oils FOB ex mainland European supply points, always subject to availability.

Domestic price negotiations for Group I base oils in and around the European markets have also reached a point where buyers and sellers are preparing to go their separate ways for the seasonal holidays and will not be seriously talking numbers now until next year, although it must be said that a few companies were continuing talks during last week on the subject of contracted volumes of Group I base oils for next year.

Prices are therefore maintained at per last with the differential between domestic prices and export numbers being maintained between 65/t-95/t. Domestic levels being the higher of the two.

In the Group II camp prices are seen as stable, but with two important factors emerging. One being that European prices are gauged to be stronger than in many other markets elsewhere, and two, that there is now a substantial differential between Group I and Group II prices. These facts have lead to some savvy buyers raising these pricing anomalies with their suppliers, but at present the market appears to be inert and non-responsive to these questions.

With new local European production coming on-stream during the first quarter of next year, and the possible decline in overall imported quantities coming into the European markets, there may be scope for possible adjustments in this base oil sector. However, a balancing aspect may be that European demand for Group II base oils is increasing and will continue to grow through next year, perhaps negating any requirement for producers and importers to react on adjusting prices.

Currently prices are maintained with FCA and truck/barge delivered levels for the light vis grades, 100N, 150N and 220N, remaining in dollar terms between $885/t-$930/t (785/t-825) with heavier vis 500N and 600N grades between $960/t-$1000/t (850/t-885). The euro prices are adjusted to reflect exchange rate variations.

Group III prices are also declared as stable with the pricing division between partly-approved and fully-approved grades continuing to be a defining issue in this market. Prices remain in the same ranges as last reported with this market now marking time until early next year, when price talks may be resurrected between buyers and sellers.

Prices in respect of partly-approved Group III grades are maintained between 740/t-760/t in respect of the gamut of 4 centiStoke grades, with levels between 760/t-780/t for the 6 cSt material, and 780/t-800/t for 8 cSt base oils. All in respect of FCA Antwerp-Rotterdam-Amsterdam sales.

Fully approved base stocks holding ACEA and European OEM approvals remain between 860/t-880/t in respect of 4 and 6 cSt material between 885/t-910/t, and 8 cSt at 855/t-885/t. These prices are also being on the basis of FCA Antwerp-Rotterdam-Amsterdam.

The prices above do not reflect prices for material which is delivered in bulk cargoes to large or major buyers. Prices in respect of these trades may be lower than FCA levels above.

Baltic and Black Seas

Baltic reports contain the news that another large parcel has been completed for receivers in Nigeria, this being in addition to the reported Baltic loading of 10,000 tons of base oils which was identified in last week’s issue. The first parcel apparently sailed to northwesternE where a further 5,000 tons of material was added to the initial cargo. The second Baltic parcel is also of 10,000 tons, although it is not clear if further top-off quantities of base oils are planned for this parcel.

A large number of smaller cargo movements have also been confirmed moving from Baltic ports to Antwerp-Rotterdam-Amsterdam, Scandinavia and the west coast ofthe United Kingdom in what may be deliberate calculated moves to evacuate stocks from Baltic storage prior to year-end, since many of the cargoes will be at sea on December 31.

With many of the Baltic distributors and resellers running down inventories and clearing tanks prior to year-end, some have elected to wait until January before replenishing inventory, on the basis that prices may be lower due to the current downward curve for feedstocks.

Prices have stabilized within the last identified spreads since the prices heard for the two large parcels sold represented numbers around those ranges with FOB levels around $580/t-$599/t in respect of SN150, and SN500 between $585/t-$600/t. Bright stock ex southern Baltic remains between $795/t-$820/t FOB.

Black Sea trading into Turkey is reported as ‘slowed’, meaning that many of the import and blending operations with Turkey have relinquished activities for the season, and will not resume operations until after the holiday period. Sellers in the Mediterranean have continued to try to hawk cargoes into Turkish ports during the second half of this month, but few have been successful in gaining acceptance to these offers. If there are any reports of buying these tend to be confined to buyers taking small quantities by truck from the local refinery at Izmir, with prices which were heavily discounted during November and have remained flat since.

Offers for European Mediterranean Group I base oils have contained prices between $605/t-$620/t for quantities of SN150, SN500/600 between $610/t-$625/t. Bright stock offers are rare since the local prices for this grade are exceptionally attractive and are believed to be around $775/t basis FCA.

Russian exports are offered for January arrival into Turkey, but as yet prices have been unclear with different levels being applied to Turkish delivered volumes as opposed to STS shipments ex Kavkaz, Russia,, which are designated for export outside the region to Middle East Gulf, the west coast of India or points West.

Middle East Gulf

In Red Sea trade further cargoes ex Yanbu and Jeddah are reported for locations in Middle East Gulf such as Oman and United Arab Emirates, in addition to discharge ports in India. There appears to be one confirmed prompt cargo for around 15,000 tons in total with another comprising of around 12,000 tons, both to lift during December. It is anticipated that these cargoes will comprise of both Group I and Group II grades.

Even in a region which does not confer to the Christmas and New Year holidays, Middle East Gulf trade has diminished after the brief import revival of Group I import offers from Europe and U.S. With the region going into holiday mode, many of the day-to-day operations and administrations are closing for at least a few days thus curtailing any opportunities to conduct normal business. Obviously with other parts of the globe slowing down over the next couple of weeks, this will also affect trade in the Middle East Gulf regions.

U.S. sanctions seem to be biting by affecting exports from Iranian ports, and while Iranian producers are still keen to move cargoes of base oil to regular receivers in U.A.E. and India, they are being hampered by a lack of shipping available to move these cargoes and also receivers in U.A.E. and the west coast of India are concerned regarding U.S. opinion as to whether they should be receiving material from Iranian sources.

Turning to the region as an exporter other than Iranian Group l, the Group III markets are booming with further cargoes announced for late December and January from Bahrain U.A.E. and Qatar.

The attempt to quantify prices in regard to these exports by producing notional FOB levels is becoming more accurate with further cargoes moving to discharge ports in India, Europe, Turkey and Far East. Levels pertaining to FOB values remain unchanged this week. Levels are established and assessed to be between $825/t-$860/t ex Al Ruwais and Sitra in respect of the three main grades, 4 centiStoke, 6 cSt and 8 cSt, in respect of partly-approved base oils.

Those base oils carrying full European approvals marketed through Neste, issuing from Sitra refinery, is estimated to lie between $915/t-$945/t in respect of the range of 4 centiStoke, 6 cSt, and 8 cSt material which moves to European, U.S. and other western markets. The 8 cSt grade which moves eastwards will show lower netback results due to selling prices in those markets being around $150 less. This enigma is caused by traditional local pricing for this grade being lower due to lesser demand.

The FOB 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 sources.

Prices in respect of fully approved Group II base oils ex hub storage located in U.A.E. on basis FCA or delivered by truck or flexies, are estimated between $1085/t-$1030/t for the light grades 100N/150N/ 220N, with 500N/600N between $1155/t-$1195/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 300-500 mt per offtake. Prices may vary with destination and distance from hub supplies.

Africa

North African trade reports that the EGPC tender has been awarded to a Swiss based trader, for at least part of the supply arrangements. The expectation that the award would go to either to the incumbent supplier or another major appears to have been misjudged, although local reports have confirmed that the prices offered by traders were lower than previously established for this supply. The higher prices established prior reflected irregular payment patterns and associated costs in supplying this tender.

West African trade is finishing the calendar year on a high note with large quantities of Group I base oil being sourced and purchased on behalf of a number of receivers, indirectly by traders, and also directly from suppliers by Nigerian buyers on a CIF/CFR basis. it would appear that additional material to that identified last week will be arriving into Apapa during January.

With the original U.S. Gulf Coast cargo, and 15,000 tons loading out of Baltic and northwestern Europe there will be further quantities in the form of 10,000 tons ex Baltic and potentially some 15,000 tons of Group I base oils sourced out of the USG. A potential total of some 55-60,000 tons is marked for arrival into the Nigerian market over the next few weeks.

These quantities may have achieved the best possible option of being on the high seas at year end, thus avoiding taxes and charges against inventories.

Using established FOB Baltic prices and published representative freight costs, Nigerian CIF/CFR offer prices are reviewed in light of the two new Baltic cargoes and the USG parcel, with prices moving over for the neutrals but slightly higher in respect of bright stock. The ranges are indicated between $720/t-$750/t in respect of light solvent neutrals SN150-SN180, with heavier grades SN500/600/650 between $760/t-$800/t, and bright stock slightly higher at around $920/t-$955/t. SN900 remains indicated at $815/t-$845/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.