Group II supplies are plentiful, and the market is being described as saturated, meaning that keen prices are needed to move volume. This has contributed to downward price pressure on these oils so that the efforts to boost Group I levels raises the prospect of a narrowing price spread between the two grades.

Group III oils seem long with more than adequate availabilities of all grades, including those with full and partial slates of finished lubricant approvals. Large quantities are still being imported to Europe from the Far East and the Middle East Gulf, whilst domestic production is running at an all-time high.

Crude oil prices rose early in the week and then fell as dated deliveries of Brent crude posted yesterday at $70.05 per barrel for July front month. West Texas Intermediate crude aped this trend by retreating to $60.90 for June settlement. ICE LS gas oil climbed close to $650 per metric ton, then dipped to $631/t for June front month. These prices were obtained from ICE London trading late Monday.

Europe

Group I export prices throughout Europe are stable with the exception of bright stock which is showing to have become longer over the last few weeks, causing prices to be adjusted downwards. Some offers heard and seen this week have contained prices which have been raised by some $5/t-$10/t, but whether these increments will eventually be reflected in actual selling prices remains to be seen. Refineries which experienced turnarounds during the first part of this year are all back at full production, lending another weighty factor to an abundance of product being available in the market.

One suggestion this week is that the arbitrage may be opening for bright stock to move to Far East and South American markets, although at this point the arbitrage is marginal.

Prices are maintained for the range of solvent neutrals, light vis grades being between $550/t-$575/t with SN500 remaining between $575/t-$600/t. Bright stock prices have dipped by some $15/t to produce prices in a range between $715/t-$745/t.

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 and local prices are also seen as stable with the exception of bright stock, although the discounting in respect of this grade is not so severe as seen in the export market, with levels only moving lower by around $5pmt. Sellers are talking about moving numbers higher for June have experienced a small but significant increase in demand for these grades during the first part of May. This may be testing the market to gauge reaction to such a move, with offers for June sales only appearing towards the end of the month.

With Group II prices continuing to come under pressure the gap between the two types of base oil may become narrower, lending weight to an argument to make the move to using Group II material as a replacement for Group l. Imports of Russian origin product into mainland Europe from the Baltic have been stemmed a little due to supply limitations from those refineries undergoing turnarounds, this in itself may help to bolster the mainstream production of Group I availabilities.

The differential between domestic and export pricing is maintained, domestic levels being levied between 65/t-90/t higher than exports.

Group II prices are regarded as steady to weak but with fewer reports of extremely low prices being offered around. There remains a sentiment that prices can still be negotiated for these products for new business, where previously no such discounting would have been possible or considered. The importing of lower priced material from the U.S. has almost ceased with prices in that region rising on the back of feedstock costs, and the European prices falling as a result of increased availabilities in the market.

Group II numbers remain unaltered this week with FCA levels for the light-viscosity grades 100N, 150N and 220N falling between $740/t-$850/t (655/t-755), with the heavier grades 500N and 600N between $770/t-$890/t (680/t-790). The ranges remain relatively wide due to some prices for new business reflecting numbers at the low extreme, whilst traditional smaller supplies remain at a premium at the top end of the spread.

Group III prices are hanging on at current levels but the market is weak with availabilities at an all time high. There are some reports of fully approved grades being heavily discounted for some buyers, which has resulted in narrowing the differential between partly-approved oils and some fully-approved material.

In respect of the partly-approved Group III grades prices remain between 670/t-720/t for 4 centiStoke grades, with 6 cSt and 8 cSt base oils between 680/t-735/t. Prices reflect FCA sales ex hubs located in northwestern Europe.

Fully-approved ranges are widened to reflect reports of some exceptionally low offered prices with levels being assessed between 755/t-860/t in respect of 4 centiStoke product, 6 cSt material between 795/t-875/t, and 8 cSt grades between 780/t-865/t, basis FCA Antwerp-Rotterdam-Amsterdam.

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

Baltic and Black Seas

Baltic trading is reported as stagnating at the moment with a lack of full supplies reaching the ports from Russian refineries due to one reason or another. There are lower than normal availabilities coming out of the main supply points due to maintenance at a couple of the main refineries, coupled with the fact that demand is lackluster for Baltic supplies with sufficient avails lurking around the European mainstream markets.

There are a fewer number of short-sea trade cargoes at this time, possibly because of the same reason that all mainstream European refineries producing Group I base oils are back in the market following turnarounds, with plentiful avails of quality product at attractive prices. There is however another Nigerian enquiry for around 10,000 tons of heavier grades to be loaded out of the Baltic during second half May.

Belarus producer Naftan has not overcome the Urals crude Issue as yet in relation to the production and availability of base oils from that facility. Alternative arrangements for supply of base stocks to local blenders is taking place with Naftan not offering any material for export at this time.

Prices this week remain unchanged from those traders and resellers holding stocks of base oils for prompt sale, and are as previously reported. FOB levels in respect of SN150 are between $475/t-$500/t with SN500 between $485/t-$520/t. Bright stock ex southern Baltic is perhaps the only small change to prices from this region and is re-assessed at between $715/t-$735/t FOB.

Black Sea trade is complex at the moment due to the problems in Turkey with the local refinery which has eventually restarted production after a hesitant completion of maintenance. Local prices have risen substantially during the last few days reflecting the raw material cost increases associated with the production of base oils from this refinery. These changes are due in the main to the devaluation of the Turkish lira against the dollar, this action in turn has opened the door for imported Group I base oils to be supplied from European Mediterranean sources.

At the same time lower priced Russian exports have become attractive to blenders and resellers in Turkey, where a number of buyers can work as a cooperative to purchase smaller parts of a larger cargo which can be imported at lower prices than European supplies. Exposure to the market is minimized by buying smaller parcels with less capital being tied up over time.

The result of the activity is that price offers from Mediterranean suppliers have moved upwards, suppliers seizing the opportunity to align prices with the local market.

Mediterranean suppliers’ offers for Group I base oils CIF Marmara are heard at $575/t in respect of SN150 and $595/t for quantities of SN500, some $15/t-$20/t higher than previous offers. Bright stock has been offered from a number of European sources and is indicated at prices around $790/t CIF on a stand-alone basis or as part of a larger cargo including solvent neutral grades.

Kavkaz, Russia, supplies are offered delivered CIF into Middle East Gulf and the west coast of India for SN150, SN500 and SN900. Prices in respect of these grades are assessed at around $465/t-$485/t in respect of SN150 with SN500 between $480/t-$495/t. SN900 is indicated at around $560/t

Middle East Gulf

Red Sea reports news that large cargoes of Group I and Group II base oils are to load ex Yanbu and Jeddah to India and Pakistan, with one cargo estimated to comprise of up to 30,000 tons of base oils, This would be the largest cargo loaded out of the region for some time.

Middle East Gulf reports contain confirmation that a number of relatively large Iranian base oil cargoes have been loaded out of BB and Bandar-e Emam Khomeyni (BIK) destined for Indian receivers in Mumbai anchorage. Sources in United Arab Emirates and India have reinforced suggestions that trade is carrying on as normal from Iran with sellers clearly having the ability to charter in vessels to deliver cargoes of base oils. One source has intimated that vessels being used are those arriving carrying quantities of Group II and Group III base oils as imports going into Iran. This fact has not yet been corroborated.

Buyers located in U.A.E. are assessing a further large parcel of Russian export grades from Kavkaz, Russia, in the Black Sea since they comment that even if they cold lay hands on quantities of Iranian base stocks the prices pertaining to the supply ex Black Sea will be more attractively priced. CIF price offers have been suggested on basis delivered U.A.E. at around $565/t in respect of SN150 and $575/t for SN500. SN900 is indicated at $635/t.

Group III base oils from Al Ruwais refinery in U.A.E. and Sitra refinery in Bahrain are allocated notional FOB prices on the same basis as last reported/ Levels are maintained although there are rumors that prices are coming under pressure in key markets, and that these levels will eventually filter back to affect netback prices.

FOB numbers remain assessed between $695/t-$735/t in respect of 4 centiStoke, 6 cSt and 8 cSt base oils. 8 cSt grades going into India and Far East will have lower FOB prices due to local selling prices.

Nexbase Group III base oils marketed by Neste carrying full European OEM approvals ex Sitra refinery will have FOB levels currently assessed hgiher due to increased selling prices in destination markets, those levels being between $855/t-$900/t in respect of 4 centiStoke, 6 cSt, and 8 cSt grades delivered into the European and U.S. markets.

Nominal FOB netbacks are based on prices extracted from regional selling levels, less marketing, handling and freight costs.

Group II prices within Middle East Gulf markets regions are assessed slightly lower this week with selling levels in respect of base oils sourced from Far East and U.S. and holding full global approvals, sold FCA ex U.A.E. hub storage, in ranges between $865/t-$900/t in respect of the light vis grades 100N/150N/ 220N, and 500N/600N between $875/t-$920/t.

Africa

The North African market is again active with supplies of all types of base oil moving into receivers in Morocco, Algeria, and Egypt. Origins of material are from Spain, Italy and Greece, and in addition offers of material are to be heard from Yanbu/Jeddah.

In West African reports receivers in Cote d’Ivoire and Guinea will be supplied with a cargo of 6-7,000 tons of Group I grades for delivery into Conakry and Abidjan during June. In addition a further cargo covering the Ghana tender of 5,000 tons of three Group I grades, SN150, SN500 and BS has loaded ex Livorno in Italy, and will also deliver a further 10,000 tons into receivers in Apapa. The economies of scale will ensure that margins are healthy on this type of cargo. This is in addition to a further cargo of Russian and Polish Group I exports which may load around the end of May for the same destination.

Group I prices for material currently to be landed into Nigeria from USG and also from the Baltic are maintained between $670/t-$680/t in respect of SN150. SN500 levels are assessed between $680/t-$690/t, with bright stock perhaps coming in slightly lower between $885/t-$925/t. SN900 is indicated between $695/t-$720/t. All prices are basis CIF/CFR Lagos.

The prices above refer to large cargoes of minimum quantity of 10,000 tons in total, landed into Nigerian ports such as Apapa, Lagos.

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