Prices of stable crude and petroleum products have reinforced the anguish attached to the production of base oils, given that many refiners have little choice other than to maintain base oil supply, even at lower levels to honour commitments to in-house and third party blenders who continue to make finished lubricants available for the consumer markets.

Dated Brent continues to trade at $108.80 per barrel, almost identical to one week ago. ICE gas oil front month continues at $930 per metric ton, marginally up from last week by $25/t. These spreads however are still relatively tight, considering the time of year with seasonality factors creating upswings and troughs in what is normally a turbulent market for gas oil grades.

This scenario only reinforces the need for base oil prices to stage some sort of recovery, but when this will happen is anything but certain, given that some producers can supply material at levels which may be below breakeven. Others have commented this week that they will not sell any barrels at prices which do not contribute to total barrel economics. They further state that following clearance of inventory during December, production will not be released at low numbers, fuelling rumours that prices may start to rise during the first part of next year, should these suppliers take a tough stance against the current market conditions.

It has been difficult to adjust prices this week due to the small amount of business transacted and the unwillingness of sellers to discount numbers further. Prices are therefore left almost in the same ranges as last week with some small alterations at each end of the spreads.

API Group l European solvent neutrals remain at $880 to $910/t, with heavier neutrals between $910 and $935/t. Bright stock remains at $985 to $1020/t. These prices refer to FOB levels for bulk sales of cargo lots of base oils ex mainland European or North African outlets, where availability of each grade allows.

Local inland sales continue to narrow between the two hypothetical markets of export and domestic sales, the point where apart from cost premia for handling, storage and delivery, the two pricing tires have all but disappeared. An average of some additional 25/t is applied to the numbers above to give local purchase price levels in todays market.

Baltic and Black Seas
Baltic shipping reports one 7,500 metric ton cargo of SN 150, SN 500 and SN 900 being loaded from Riga for Rotterdam, where either it will probably be re-loaded with other material, or topped off with other products such as bright stock, with a final destination being West Africa.

Prices were undisclosed but FOB levels were expected to be $840 to $855/t for the two normal grades, with SN 900 at $885/t.

Negotiations are persisting for Russian or Belarus base oils to be loaded out of the Baltic before year end, although with every day that passes this is looking more and more unlikely, and lifting may be postponed until early January. Bids for further supplies are being requested on discounted basis against the prices above, but these new low levels are being resisted by sellers who are not able to replenish stocks from FCA purchases to allow FOB sales at these levels. Only cash flow requirements and positive year end balance sheets will allow these deals to go through.

Black Sea Russian supplies have almost halted, with only one small cargo of 3,500 metric tons being reported loaded for a Turkish port discharge. Turkish buyers have seen the first Iranian parcels ex Middle East Gulf arriving, and with reports of a further 6000 metric tons being currently loaded, it would appear that local or Azerbaijani traders have created a new trade arbitrage to beat Western sanctions. South American barrels have been offered into Turkey, but with expected Iranian levels at $900+/t the FOB level at $845/t plus freight costs for the South American parcel may rule out the possibility of this follow up to a previous cargo which arrived in November from same suppliers.

Iranian supply prices are difficult to fathom without direct input, but with local trader offers forthcoming at $825/t basis FOB Iranian ports, then taking account of margins, FOB levels could be $800 to $820/t, and with freight estimated at $75 to $90/t, CIF levels will possibly be close to $900/t landed at Aliaga.

Turkish buyers were hoping prices would fall to $875/t basis CIF, but these expectations appear to be unrealistic in light of the limitations of the FOB prices from Russian traders who are simply unable to meet these levels. Prices around $900 to $930/t are being offered basis CIF Gebze, and buyers bids are now starting to take shape around those numbers.

Middle East
Middle East Gulf trade has been quiet, with many expats taking the opportunity to vacate to European and Indian havens, whilst as noted above the flow of Iranian base oils continues under the auspices of traders from the regions.

Prices have been depressed but possibly have not fallen from last week, with SN 500 being offered at $835/t basis FOB UAE ports, and SN 150 and SN 500 out of BIK and BB at $825/t FOB. UAE re-exported material is still being offered in flexies at $880 to $890/t FOB, whilst some Pakistani SN 150, SN 500 and bright stock has been rumoured as offered CFR into Jebel Ali or Hamriyah at $855/t for the neutrals and $985/t for the bright stock.

Africa
East and South Africa have been reserved this week, with a few sales of flexies reported into Mombasa and Durban at $1065 to $1075/t CIF. No further Group l enquiries have been heard or reported after the 6,000 metric ton mixed grade cargo had been lined up from Europe to South Africa which is now en route to Durban, although it has been commented that traders are trying to follow up the first parcel with another which will land during January or early February.

West Africa arrivals into Apapa and Tema have been taking place this week and with three more cargoes from the Baltics, Northwest Europe and Mediterranean due to discharge prior to end December at Lagos port, this should complete the imports into this region for 2012. Prices will be held as per last weeks report with Group l solvent neutrals landing CFR at $940 to $980/t, along with bright stock where this grade forms part of the cargo at around $1065-$1080/t. SN 900 ex Baltic will land at $975-$990/t.

The outcome of the FOB offer of South American material has not been disclosed as yet, although a number of parties were showing interest to take this material into West Africa.

Group II/III
Group ll European imports have decreased, indicating that Group ll base oil stocks may be increasing, or at least sales may have stalled amidst a similar pattern for Group l. Sellers and distributors have not been displeased by the way in which Group II sales, and above all prices appear to have held up in Europe, which are the same as last week, between $1050 and $1075/t for light material, with heavier grades at $1085 to $1145/t.

Middle East Group ll prices have come under fire due to imports into nearby West Coast India, which have dragged down Far Eastern supplies to $1000/t for 100N, 150N, and 220N, with heavier vis grades 500N and 600N $1045 to $1080/t. The hope for 2013 is that these rogue imports will not be around, and prices can be allowed to recover at least to acceptable levels.

European Group lll levels have dipped again in light of the abundance of material available on the market coupled with lacklustre demand. With prices for both 4cSt and 6cSt grades coming together, the Group lll market is defined in one singular price range, which shows at 955 to 1010/t. Demand during December has fallen off for these grades, but it is anticipated that during the fist quarter of 2013, demand for this type of base oil will return, even if Group l demand remains flat. Players see that future demand will be created due to higher specification finished lubes coming to market which will require use of Group lll base oils. These comments regarding anticipated growth emanate from importers and local producers of Group lll grades within Europe.

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