These moves are encouraging for base oil producers who can keep margins, but the global decline in demand for all petroleum products is decreasing requirements for refined material. Subject to delayed effects of crude products daily movements, base oil prices may have further to fall.

API Group I prices within mainland Europe have fallen $10-$20/t across the board, with some areas and grades dropping more. Light vis solvent neutrals from SN 70 to SN 150 are now $910-$925/t, with SN 500 and SN 600 perhaps bearing the brunt this week, at $920-$935/t. Bright stock has also shown signs of weakening, with offers of $1110-$1125/t.

These prices refer to export sales and offers for large parcels of Group I base oils made available ex mainland European and North African supply points.

Local prices within Europe have undergone fundamental realignment, with levels falling in line with export numbers. Many said price changes were long overdue, with many suppliers not having altered selling prices since before summer. A market that was showing signs of growth (at least in northern Europe) has now retracted to echo the decline in Iberia, Greece and Italy. Throughout European mainland, both base oil and finished lubricants demand is lacking. Only sporadic, isolated pockets of activity give hope.

Differentials of local sales over exports have dropped to 45-50/t, taking account of extra handling costs, storage and in some cases distribution charges on local or domestic sales.

European markets have seen Group II prices discounted in line with Group I and also source decreases. With a number of U.S. producers cutting prices to protect domestic market share, export levels for Group II base oils have adopted levels which are sometimes below domestic levels and are aggressive when compared to Far East FOB levels. This is being linked to the sudden rise in production from facilities such as Pascagoula and other operations streaming in the coming months, which may fuel global oversupply.

Prices for some Group II grades are being reported at levels below Group I comparable viscosities, which could be seen as giving away on quality. Some are defending these actions by stating that Group II production costs at new facilities (which are forming the rump of the markets) are lower, and that margins are not compromised by the new wave of price reductions.

European levels for Group II light vis grades are $1010-$1035/t, with heavier grades offered at $1025-$1065/t. All prices are basis ex tank Antwerp-Rotterdam-Amsterdam-Germany. Group II sellers within Europe said that these base oils are more akin to domestic market prices, and whilst cargo sales of these grades can be established at lower levels, ex rack or ex tank sales will continue to carry a premium, similar to Group I local selling levels.

Group III has also been subject to revisions, with many suppliers reviewing levels without being pushed by buyers. This unusual move is designed to deter any temptation to stray from incumbent suppliers should some prices be reduced and others maintained or reduced by lesser amounts. Imported Group III has been the subject of discounts at source, hence expectations for similar reductions in Europe. Prices appear to have dropped by an average of 25-40/t, bringing both 4 cSt and 6 cSt grades to 895-915/t.

Baltic and Black Seas

Baltic suppliers report that some products are short and prices have fallen to lows detailed last week. Some distributors and traders have not replenished stocks from Russian refineries, since ex gate prices are too high to be able to offer the FOB levels demanded by buyers. The incentive for sellers has gone out of the market and margins on both SN 150 and SN 500 are being squeezed, with FOB prices dipping to $810-$825/t. There are few reports of any SN 900 or derivatives being available on a prompt basis, with only one supplier tentatively offering around 2,000 tons for early November loading at $925/t FOB.

Black Sea trade has been thin, with a number of the usual importers in Turkey looking at Mediterranean supplies rather than relying on Russian and Uzbek products. Prices for the few avails of Russian sourced material are quoted at new lows of $835-$850/t basis FOB, and although these are more competitively priced than avails from the Mediterranean, the guarantees for loading are not in place should there be more conflict in Ukraine. Prices for Group I SN 150 and SN 500 ex Mediterranean being landed CIF into Turkish ports such as Gebze and Aliaga are $930-$945/t, with bright stock at $1135/t.

Trader barrels of bright stock are currently going into Egyptian General Petroleum Corporation at Alexandria under the quarterly purchase tender at around the high of FOB published prices, plus around $120/t which appears to be high, but payments are not always simple and risks are that these can take some time to be processed, which would affect cash flow for some of the smaller enterprises registered to bid.

Sudanese receivers have issued another tender for supply of base oils into Port Sudan, but as usual, the parcels are small, so its excluding offers from anywhere more remote than a Red Sea load port. With only one supplier in this region, the business is retained on an ongoing basis by incumbency.

Middle East

Middle East Gulf regions report extensive activity, with imports of Group I from U.S. suppliers, along with parcels of Group II, which are also arriving for traditional Group I receivers. It emerges that some of the offers for Group II are priced lower than Group I availabilities from almost any source, and with Iranian export barrels still the subject of sanctions, prices for Group I solvent neutrals remains relatively high. FOB levels are assessed at $1010-$1025/t for SN 150 and SN 500, and with Russian barrels offered in flexies at $1045-$1060/t, indigenous supplies are under scrutiny.

Transportation by flexibags in containers is proving more cost efficient than moving bulk parcels, particularly from remote loading ports in the Baltic, and with the ability to load many containers, this practice is taking over some of the more traditional supplies. Traders are still looking at large Baltic cargoes, but with avails being relatively tight in the Baltic, this scheme may have to be put on ice, at least until larger quantities of SN 500 are available to load out of one or two ports. Theoretically, prices of $890-$900/t for the two main grades could be established, but quantities would have to be in excess of 10,000 tons for the parcel.

Bright stock cargoes are being worked into Middle East Gulf from U.S., but receivers expectations are being countered by sellers who are aware that sources for bright stock at acceptable levels can only come out of the U.S. currently. With European prices still high, and Far East numbers not adding up, United Arab Emirates receivers will have to accept offered levels of around $1095/t CIF.

Group II prices have dipped again, with a number of offers from U.S. exporters and traders on the table. Prices are continuing downward, with the latest round of offers for both light vis and heavy vis Group II grades at $985-$1000/t. Reported offers for 75N, 100N, 230N and 600N are pitched at around $990/t, with the chance of counters taking this down another $10-$15/t. Far East suppliers are reluctant to bow to pressure and discount current levels. However, these offers are real and may see further reductions in coming weeks as stocks grow in the U.S. despite very few possibilities of moving large slugs. Far East offers are $1005-$1015/t basis CIF U.A.E. ports, but these may have to be adjusted downward for October delivery.

Africa

There are reports that South African receivers are ditching supplies of SN 150 and SN 500 from U.A.E. sellers in favor of material in flexibags from Russian suppliers. Prices are apparently competitive, with these two grades landing in Durban at around $1078 and $1068, respectively -much lower than offers from U.A.E.-based traders, which are being quoted some $100/t higher. Lead times for delivery are less and require less planning coming from U.A.E., but Baltic loaded material is higher in spec and lower in price, and will be considered by this set of buyers.

West African buyers in Nigeria are searching for Baltic-priced material in quantities which can be shipped to Lagos. With limitations on avails, the last large cargoes have sailed from the Baltic after loading this month. Prices are estimated at $945-$970/t in respect of SN 150 and SN 500 shipped, with SN 900 only being available at the moment from U.S. sources and slightly lower in specification than normal. Prices landed for the SN 900 have been offered at around $1055/t.

A European trader won the Ghana tender using a number of various approved sources for each cargo and each grade, and will commence receiving deliveries during November. Prices have not been revealed, but it is believed that the formula will be based on index-linked levels to a base oil publication, plus a premium to cover freight, costs and margins.

Nigerian buyers are seriously considering taking Group II cargoes of 600N which can both compete on price with Group I SN 500, and also provide a welcome lift to quality and specifications for some domestic blenders finished lubricants. Levels for this grade contained in offers are quoted at $995-$1010/t, landed CFR/CIF Apapa.

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.