Despite the recent cold weather in U.S. and mild winter temperatures throughout Europe, crude levels have straight-lined at what could be construed as artificial highs. This keeps petroleum products at their respective levels, with ICE gas oil trading at around $913/t, having moved only 10 points up or down in the past four weeks.

This background has been the only saving grace for Group I base oil prices, since there have been no economic pressures to increase prices immediately, and little ammunition for buyers to call for even lower numbers.

Prices are in the same spreads as last week, with one notable exception.

Some producers have recognized that ceasing production of Group I light neutrals can offer savings, and in the future some suppliers will offer imported Group II grades as an alternative. Currently, ranges take account of the slightly higher-priced Group II grades, and the ever decreasing selling levels for Group I neutrals.

Prices now lie between $910 and $1065/t, with the heavier Group I grades such as SN 500/600 between $930 and $975/t. Bright stock appears to have weakened in the light of forthcoming offers. Buyers are trying to counter levels of $1045-$1075/t, at some $10/t less.

Export prices refer to cargo-sized parcels offered or loaded ex European mainland or North African supply points where availability allows.

Group I base oils buyers in Europe are spreading enquiries for material wider than ever before in search of the best deals. Blenders in Benelux are trying to source from Eastern Europe and are importing material from Russian and Belarus refiners. This endeavor has opened up supply chains which yield the lowest cost material on the basis of acceptable specifications and delivery timing. Prices locally have come under pressure and many suppliers have capitulated to counter bids.

The result has been an erosion of local pricing for Group I grades throughout the European mainland, with some buyers commenting that they are able to purchase at levels no higher than export cargo numbers.

Levels continue to fall with a differential between domestic selling levels and export prices of only 40-65/t.

Baltic and Black Seas

Baltic sales have been slow due to many factors. Firstly, prices have been so depressed that some sellers are not routinely replenishing stocks. In addition, West African receivers have been quiet after a large influx of material in December. Also, ice class vessels are proving expensive to charter for Baltic trades.

With the two main Russian grades, SN 150 and SN 500, being offered where available at $840-$860/t, buyers are still not prominent enough to lift cargoes out of this region. Area suppliers are currently trying to offer material in flexies which may allow discretionary margin over bulk sales. SN 900 is scarce with only a few sellers able to offer quantities in flexies.

A more desperate picture is evolving in Black Sea regions, with buyers staying away from the market due to poor demand within Turkey. Some blenders commented that by having to absorb extra costs of currency exchange to purchase base oils and additives, and then paying their staff and running the plant, they are losing money and would be better off closing until the market improves.

Middle East

With a maelstrom of civil unrest in Egypt and war in the region, effect on the base oil industry has been enormous, with the closure of many blending plants and facilities. The established industries within Syria, Lebanon and Iraq have few hopes of returning to lubricants production as it was before the Syrian disaster.

Red Sea problems appear to be in abatement with the Sudan situation calming over the last week. Exports of Group I solvent neutrals continue from ports such as Yanbu and Jeddah in Saud Arabia, with material earmarked for importers in U.A.E., Oman, and India. Prices can be established around European Mediterranean levels plus a small premium, suggesting FOB levels around $950-$970/t.

The Middle East Gulf region appears to be an oasis in this desert of downturn, with buoyant imports and sales of all types of base oil. This is not to say that this regions prices are more or less attractive to sellers, or that its unaffected when it comes to exports, but the local demand for all types of finished lubes is possibly enough to support the large number of imports.

Prices are competitive, with Iranian exports of SN 500 around $900/t basis FOB, and no apparent shortage in the market. The proliferation of Iranian Group I grades makes it difficult for other imported Group I material to flow into these regions, such as Russian SN 500 ex Black Sea, and surplus material from Far East suppliers. Offers of Group I grades from sources such as U.S. and Europe have proved too expensive, so with the Iranian situation becoming more flexible, more exports may find their way to the southern Middle East Gulf ports for domestic use or re-export.

Africa

East African importers are maintaining that they can compete with Total and Shell when it comes to base oils, since they have a wider choice of suppliers and can use varying specs and formulations to produce lubricants for specific local markets. Recycled base oils and lower-quality Group I grades are being optimized to produce and sell second-tier finished lubes to retailers and resellers.

U.A.E. flexies of SN 500 are arriving into ports such as Mombasa at around $1085-$1125/t, whilst supplies of recycled SN 500 are available on a CIF delivered basis at around $965/t.

South African importers report similar levels for Iranian SN 500 ex UAE traders, but with further cargoes of European and /or Baltic material being planned for this region, many of the second-tier buyers are opting for supply by truck from these resellers. Prices are relatively high, with resellers offering SN 500 ex tank at $1185-$1240/t.

West African trade is subdued with only some peripheral interest in offers for March. Large parcels may not be available from Baltic suppliers during the next few weeks, with the result that some suppliers are looking to load ex Mediterranean and Atlantic ports on the back of contracted business for receivers in Ghana. Northwestern European sources may look at one or two parcels on offer, but these trades must firm up before cargoes start arriving into West Africa.

Prices are quoted — as per offers received by Nigerian importers last week — at $940-$1020/t in respect of Group I solvent neutral grades, with bright stock between $1095-$1135/t. These are aggressive numbers but may reflect parcels for delivery within the next two months.

Group II/III

Group II European markets await the influx of material from the U.S. Gulf Coast, which will become the largest and most prolific European operator for Group II products. Through a network of distributors, these grades will be available and will compete with Group I base oils, perhaps not on price, but certainly on value.

It is also anticipated that other producers of Group II products may consider pitching the European market. With industry forecasts predicting the overall demise of Group I facilities over the next few years, and with recovery in the markets forecasted, Europe could be attractive.

Prices are starting to come under pressure as Far Eastern importers move to protect market shares in the shadow of the new wave of imports. Prices are $1020-$1045/t in respect of the light vis grades, along with heavier 500N and 600N prices at $1095-$1165/t.

Middle East Gulf imports of Group II are being squeezed by buyers looking for lower prices for February and March. With most of the Group II grades coming from Far Eastern sources, there may be a hiatus in negotiations due to the Lunar New Year celebrations from Jan. 31 until Feb. 6. Buyers anticipate prices to then fall by some $10-$25/t, but the future is somewhat uncertain until after the holiday.

Levels are currently between $1025 and $1065/t for the light vis grades with heavier material landing between $1085 and $1145/t.

Group III demand within mainland Europe is starting to show signs of returning to pre-2008 levels, standing to increase in tandem with new imports. Experts comment that 2014 will be the year for Group III production and offtake, when many blenders will make quantum leaps to new grade technology and specifications.

In the meantime, prices show no dramatic surge. Levels are reported at 915-925/t in respect the 4 cSt material, with 6 cSt grades around 920-930/t on an ex tank basis.

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.