With inventories high before year-end, producers are almost desperate to move base oil. Meanwhile, blender and intermediate traders are staying clear until they have to buy to operate. Export cargoes with long delivery lead times are being renegotiated whilst en route to discharge ports -such is the extent of falling prices.

There may be three or more European mainstream Group I production units closing in the new year, which may short Group I markets. The closures -ranging from cutting production to complete shutdowns -could have a major impact on European base oil.

FOB prices for Group I grades have plummeted this week, with light solvent neutrals such as SN 100 and SN 150 at $790-$820/t, and heavier neutrals strangely starting to be priced below these levels. Some SN 500 is $785-$825/t, the high end referring to offers which are possibly outdated after three days. Bright stock numbers in offers have fallen below $1000/t, and can be obtained between $970/t and $1010/t.

The rate of change is staggering, with some suppliers trying offers some $50 out of the market, whilst others are trying to read forward with heavily discounted levels to make a sale. All of this is widening the spreads applicable to Group I prices at any one time.

These prices refer to parcels of Group I base oils offered for export sale in large parcels from mainstream producers within Europe and North Africa.

The local markets are also in a muddle, with many smaller buyers calling for levels which would have been unimaginable two months ago. With these price calls, the two distinct European markets, export and local, are merging into one. Buyers are determined to get the lowest prices, even anticipating possibly lower future levels. If there has to be differential between domestic and export sales, than the spread has be exceptionally wide, with some large blenders within Benelux, for example, able to buy at levels below export. The differential now has to be set with local numbers at 0-75/t higher than export offers, reflecting a situation where some contract purchases are being made at the higher end of the range, with some paying less than export in other cases.

European Group II trade has obviously been affected in the same way as Group I, with a number of buyers saying they think that given an apparent oversupply situation for Group II products, prices should actually be lower than current offers, and in some cases, should be priced lower than Group I grades. A number of adjustments have been made, with the lighter vis grades now $840-$865/t, and heavier 500N and 600N at $850-$870/t.

Pricing differences between Group II viscosities are dissolving, and levels this week are historic, pertaining to the last couple of weeks, with more downward changes almost certain. Realistically, Group II levels can be expected to fall another $30-$50/t, bringing them into line with current Group I movements.

European Group III prices have moved decisively downward, with some suppliers slashing prices to hold market share. Product appears to be plentiful, if not long, with importers and native producers all looking to maximize volumes in what is certainly becoming a buyers’ market. Target prices mentioned last week appear to have been exceeded by buyers who are looking to bring Group III grades into line with other product movements. Levels are 850-865/t basis ex tank within Europe, with comments received this week suggesting that further downward movements are forthcoming.

Baltic and Black Seas

Russian and Belarus exports from the Baltic have been under a great deal of pressure on prices, with numbers falling to around $760/t basis FOB in respect of SN 500. Prices for SN 150 have not declined so far, at $800-$820/t basis FOB. A 3,000-ton cargo of SN 900 is being made available from suppliers, but prices are clouded, with buyers throwing bids as low as $820-$830/t. These are expected to be raised for a prompt sale, which could be balanced out with quantities of SN 500.

Black Sea prices have dipped in line with other Russian and Uzbek exports, with some buyers claiming to have bought around 3,000 tons of SN 500 at $755/t basis CIF Gebze, Turkey. Levels are possibly rapidly approaching these prices. Similarly to Baltic selling, SN 150 is commanding a premium over SN 500 with plentiful supplies of the latter grade in evidence.

Mediterranean parcels are being talked by some Turkish importers, with claims that delivered prices for mainstream neutrals are below $800/t, with smaller quantities of bright stock being talked around $1040-$1055/t basis CIF.

Group II cargoes from both Far East and U.S. are being shown to Turkish buyers, who are considering taking these instead of Group I base stocks. In one case, levels are reported below current Group I numbers.

Middle East

Middle East Gulf trade has flattened, with demand falling. However, one buyer claimed demand was still to the fore, but that the problem lay with availabilities of all grades now exceeding requirements, particularly for Group II and Group III users. Group I levels are struggling to stay steady with local stocks of Iranian-produced neutrals falling to below $800/t basis FOB United Arab Emirates. Locally produced Group I, along with imports, have been heavily discounted this week, with a number of sellers dropping FOB levels by more than $85/t.

This move is to meet the rising possibility of imports from Russia and mainland Europe, where prices have reached levels which afford competitive offers being made into U.A.E., and of course, the west coast of India. One 14,000-ton parcel of Russian SN 500 is under offer to receivers in Sharjah, being loaded in the Baltic. This parcel can become price competitive at estimated levels CIF U.A.E. at around $825/t. Further cargoes are being considered on this basis, but vessels can be a problem for this size, given that ice-classed tonnage will soon be required to load out of Baltic ports.

Bright stock parcels have been offered from U.S. in conjunction with slugs of Group II material. Offers were around $1065-$1080/t delivered.

Group II grades have been flooding into the Middle East Gulf market with more and more avails, offers and counters coming to the fore. New prices were exceptionally keen, at $840-$870/t basis CIF. It is believed that these prices stem from U.S. offers, which appear to be undercutting offers from Korean producers. This will be temporary, since Far East suppliers are keen to protect market share, which has been hard fought for. Approvals will count in some cases, but when differentials of $50-$60/t start occurring, holding on to existing business will become increasingly difficult.

Offers have been at $865-$880/t, where suppliers have been forced to adjust levels, contrary to what was said last week, where producers were not to drop prices prior to year-end, regardless of what happed to crude and feedstock levels.

Africa

Reports are few from East Africa and South Africa, where there appears to be a certain degree of protection from what is happening to prices elsewhere. Prices have altered downward, but not to the same extent as in Europe or the U.S., affording traders opportunities to offer grades such as SN 500 for import into ports such as Durban at competitive prices. Both bulk cargoes and deliveries in flexies are being considered by some of the many receivers in South Africa. Prices are $965-$980/t CIF Durban for supplies of Russian export grades.

West African receivers appear to be on the cusp of buying large parcels from a variety of sources, including Baltic, mainland Europe, and U.S., and a number of suppliers are keen to lower inventories prior to year-end. Offers of both Group I and Group II cargoes in combination with either bright stock or heavier neutrals such as SN 900 are prevalent in the Nigerian market, with some Ghanaian receivers looking for smaller parcels, mainly for Group I, which can be delivered in tandem with Nigerian cargoes.

Prices are now where buyers expected them to be some weeks ago, but some still counter, claiming prices from European suppliers should be adjusted a further $100/t downward. This may well be the case for the future, but not before year-end.

Levels, however, have softened again with the downward trend for FOB numbers. Prices are now $845-$870/t in respect of Group I solvent neutrals irrespective of source, with bright stock around $1040-$1065/t. SN 900 derivatives may be landed between $855/t and $910/t depending on source and quality.

The real eye opener is that Group II offers can come in below Group I solvent neutrals levels, and are now being considered by a number of receivers in Ghana and Nigeria. One offer this week contained prices for 100N, 220N and 600N all grouped at $858/t basis CFR Nigerian ports.

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.