The Group II segment seems to have more product than the market requires, although the take-up of these oils is progressing due to several factors. The IMO 2020 marine fuels regulation will effect base oil usage for marine lubricants, while finished automotive lubricant formulations are being influenced by the introduction of ACEA 2016 last year. Prices remain under downward pressure because of a new surge in capacity.

Group III oils face pressure from all sides as availabilities are flush and the completion of a maintenance turnaround at a Russian plant has demand in Eastern Europe topped up for June and beyond.

Dated deliveries of Brent crude rose some $2 per barrel during the week to $71.85/bbl for July settlement, and West Texas Intermediate climbed to $62.80/bbl, now also for July front month. ICE LS gas oil increased to $643 per metric ton for June front month. These prices were obtained from ICE London trading late Monday.

Europe

Export prices for most Group I base oils in Europe remain relatively stable except for bright stock, which fell by some $10/t-$15/t. Some sellers are trying to reverse the trend in new offers heard during the past few days, but buyers appear to bucking those efforts with lower counter-offers. Some producers said they are sold out for May spot barrels and may not have enough stocks to cover June inquiries, but the market appears relaxed, with sources saying many of inquiries seem flaky and unlikely to come to fruition.

Prices are again unchanged for solvent neutrals, as light-viscosity grades are at $550/t-$575/t and SN500 at $575/t-$600/t. Bright stock is $700/t-$740/t, depending on location and size of parcel being purchased. These values refer to large cargo-sized parcels of Group I base oils sold on an FOB basis ex mainland European supply points, always subject to availability.

Prices for Group I sales within Europe are also stable except for bright stock. Sellers still claim to be looking for higher numbers for June, but realistic offers for next month are not forthcoming as yet, at least not for many contracted pieces of trade. Buyers are shying away from longer term arrangements since they have a variety of sources to choose from.

There is little evidence of larger quantities of Russian oils finding their way into mainland European markets from the Baltic, since there are still adequate availabilities from sources closer to home.

The differential between domestic and export pricing remains as last reported with domestic levels pitched between 65/t-90/t higher than exports.

Group II prices are reported as weaker with more than adequate options to purchase these grades either from existing suppliers or from newer production which trying to establish itself on the European scene. There appears to be a definite wave of sentiment towards the move to Group II away from Group l, with a number of major blenders now opting to use Group II for new generation finished lubricants. Over time the pressures will continue to build for blenders to move over to Group II with further reviews to emissions legislation being planned for 2022.

Group II prices are reported as lower this week with FCA levels for the light vis grades 100N, 150N and 220N now assessed between $735/t-$845/t (650/t-750), with the heavier grades 500N and 600N between $765/t-$885/t (675/t-785). The ranges remain relatively wide with some offers in respect of new business containing prices at the low end of the ranges.

Group III prices are also reckoned to be showing lower levels this week with an over supply situation building by the day. There are reports of fully approved Group III base oils being heavily discounted to certain buyers, with levels moving close to those for partly-approved grades. The reasoning or rationale behind this move remains as mystery to all concerned since there does not appear to be any great pressure being exerted from the buying side to effect such discounting.

Suggestions have been made that certain major suppliers are increasingly concerned regarding retaining market share in the event that some of the partly-approved grades being currently sold at discounted levels may soon gain necessary approvals, putting them on a similar standing as current fully-approved grades.

Partly-approved Group III grades prices are tainted a little lower this week, and are now between 665/t-715/t in respect of the range of 4 centiStoke grades, with 6 cSt and 8 cSt base oils settling between 675/t-730/t. Prices reflect FCA sales ex hubs located in northwestern Europe.

Fully-approved ranges reflect the incidence of a few exceptionally low prices, with levels assessed between 710/t-860/t in respect of 4 centiStoke product, 6 cSt material between 710/t-875/t, and 8 cSt grades between 705/t-855/t, basis FCA Antwerp-Rotterdam-Amsterdam.

The levels above do not include prices for material which is delivered in larger bulk cargoes to major buyers. Prices in respect of those trades may be at the lower ends of the ranges pertaining to FCA levels above.

Baltic and Black Seas

Baltic prices remain extremely low, reflecting the ultra low numbers at which traders are able to purchase either CPT at the border, or ex refinery gate. There are opportunities for resellers and traders to move material out of the Baltic to West Africa and the west coast of India/U.A.E. even given the significant freight numbers which apply to such cargoes. Trade is not expansive at this time, but there are a couple of enquiries for the United Kingdom and also a Nigerian parcel which may be confirmed before the end of May.

There are still problems and issues with Urals crude and the contamination which affected a number of Russian and Eastern European refineries over the past few weeks, although this issue appears to have been sorted out and refinery runs seem to be back on course. This problem has affected the supply of some base oils which have seen supply interruptions and missing deliveries into shore storage in the Baltic.

Prices continue to be maintained at the low levels with FOB levels in respect of SN150 between $475/t-$500/t and SN500 between $485/t-$520/t. Polish bright stock follows the European trend this week and is further discounted to $700/t-$725/t FOB.

Black Sea reports are mixed with Turkey going through a period of uncertainty with economic woes and a deteriorating currency which makes supplying base oils from outside the country a real headache, whilst at the same time local prices from the refinery at Izmir have moved up to take account of raw material costs such as crude, which have soared due to dollar exchange rate against the Turkish lira.

The door should be open for Mediterranean suppliers to offer and supply Group I base oils which are probably now competitive against local supplies, but the banking system and the exchange rates are not in the ‘right place’. There have been some deals completed over the last week with Supplies of material coming not just from the Mediterranean but also loading out of northwestern European locations for discharge into Gebze and Gemlik, Turkey.

Russian supplies are also being considered due to the low prices attached to these grades, with a number of offers made to Turkish receivers over the last few days.

Mediterranean offers for Group I base oils CIF Marmara ports are heard at $565/t in respect of SN150 and $580/t for quantities of SN500. Bright stock is also under offer and is indicated at $775/t CIF.

Kavkaz, Russia, STS reports a large cargo of around 15,000 tons loading this week for receivers in Mumbai anchorage. The arbitrage for this type of supply is and with economies of scale attached to a 15,000 tons parcel on freight costs, this business could be repeated into U.A.E. and points further east. Offered prices delivered CIF the west coast of India for SN500 are assessed at around $545/t-$555/t. SN900 as an indication only is at around $625/t

Middle East Gulf

Red Sea trade contains a number of cargoes moving out of Yanbu and Jeddah, but there are also base oil movements from Antwerp-Rotterdam-Amsterdam and U.K. going into Yanbu. There are also shipping reports of Group III material moving from South Korea into Yanbu supporting the Group I and Group II production at that refinery. the west coast of India appears to be the mainstay of exports from Saudi Arabia at this time, and of course in addition cargoes are also allocated for Middle East Gulf and Oman.

With Ramadan in progress, Middle East Gulf reports are that trade is muted at the moment, although many players still maintain that during Ramadan supplies of base oil are largely unaffected by the changes in daily routine which is observed during the Holy Month.

Iranian sources have been quiet regarding the movement of base oil cargoes out of the country at this time, and no confirmation has been received of any movements this week. Following the rhetoric between the Trump administration and Iranian counterparties it is difficult to ascertain exactly what is happening to exports from that country at the moment. Some sources in United Arab Emirates maintain that parcels are still coming out of Iran whilst other parties in India have commented that they cannot lay hands on any base oils from that source at this time, and thus are having to look for alternative sources such as Black Sea and even Baltic.

Buyers in U.A.E. are assessing a further large parcel of Russian export grades from Kavkaz, Russia, in the Black Sea, after the fixture of the large 15,000 tons cargo. CIF prices on basis delivered U.A.E. are around $555/t in respect of SN150 and $565/t for SN500. SN900 is indicated at $625/t.

Group III base oils loading ex Al Ruwais refinery in U.A.E. and also from Sitra refinery in Bahrain have notional FOB prices maintained on the same basis as last reported. Levels remain unchanged although these prices are under review and based on the next arrival into Europe and the U.S., prices may be assessed differently, and FOB levels will be adjusted downwards.

FOB numbers remain 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 levels by around $100/t due to local selling prices.

Branded Nexbase Group III base oils marketed by Neste which carry full European OEM approvals ex Sitra refinery, will have FOB levels higher 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. Although within the European market, there are suggestions that lower selling prices for these fully approved oils are being offered in certain cases, with the outcome that these netback levels may be affected at some future stage.

There are also talks that suppliers and distributors are trying to raise prices for next month, but at the same time the emphasis appears to be on retaining market share, and this may dilute the price review exercise.

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

Group II prices around Middle East Gulf regional markets are maintained 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 Mediterranean market reports a number of cargoes for Egypt and Morocco. Bright stock parcels continue to be delivered into Alexandria under the EGPC contract, but sources this week have suggested that the option to take an extra cargo during May have been declined, and that a further tender for next quarter will be issued in the next couple of weeks.

West Africa trade reports that the cargo for Cote d’Ivoire and Guinea has sailed from Livorno and 6.3,000 tons of Group I base oils were loaded for these two locations. The split between the two ports, Conakry and Abidjan is not known as yet. The other cargo covering the Ghana tender of 5,000 tons of three Group I grades, SN150, SN500 and BS has also loaded ex Livorno, and will deliver the balance of 10,000 tons into Apapa port prior to sailing for Tema to discharge the 5,000 tons of contract barrels. The additional Baltic cargo is still awaited, possibly to be confirmed later this week or early next.

One very strange cargo has been fixed to discharge into Apapa port in Nigeria. This cargo has been loaded out of Singapore and comprises of 10,000 tons of Group I base oils. The freight element is interesting, since this is not a recognized arbitrage which normally exists. Price ideas are being sought.

Group I prices into Nigeria pertaining to cargoes loaded from Baltic and Livorno are maintained between $670/t-$680/t in respect of SN150. SN500 is assessed between $680/t-$690/t, and bright stock 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.