API Group I FOB prices within the European mainland have seen further price cuts. Group I light solvent neutral grades offers are $595-$620/t, coupled in some cases with offers for solvent neutral 500 and other heavier neutrals.

Bright stock has fallen further – with some particularly aggressive offers from Mediterranean producers – to $698-$745/t. Furthermore, the feeling within the base oil fraternity is that prices may be nearing nadir, given feedstock and other products starting to maintain values.

The numbers above refer to large cargo parcels of export sales offers which have permeated the markets this week, from producers and suppliers in the European mainland.

Smaller quantity sales into local markets around Europe show a similar picture. Levels continue to fall, with some offers for Group I showing prices in line with export sales, particularly for larger quantities of material either supplied in one hit, or delivered over a period as part of a contract. Many of these sales have been on a fixed-price basis with suppliers eager to move base oils on a firm basis.

Some suppliers seem willing to discount heavily to place barrels and protect market share. Domestic sales of Group I grades still carry a cost penalty, which when levied as a premium over export prices, is 25-40/t.

In addition to threatening oversupply of Group II, European importers who are selling or reselling in euros have another problem: rising euro prices. Levels recorded at around 1.30 euros to one dollar some four weeks ago have been slashed to around 1.13.

Levels between $645/t and $675/t have been confirmed for supplies of grades such as 150N, with other light grades $15-$20/t higher. Supplies of 500 neutral and 600N are maintaining a premium over lighter grades within Europe, something which has been difficult to attain in other markets. These grades are $660-$720/t.

Some economists have called parity for the euro and the dollar, and if so, prices for Group II and Group IIl imported grades may go up.

With a weakening euro and relatively strong dollar, theres little possibility of a further drop in Group III prices, which are 685-855/t for 4 cSt and 6 cSt.

Baltic & Black Sea

Baltic region prices have moved only slightly from last week, possibly because these prices have little room to maneuver at the foot of the pricing scale. The two main Russian Group I export grades, SN 150 and SN 500 have weakened only by around $5-$10/t, and only in response to aggressive counters from buyers. Bids at around $50/t lower than these levels have been staved off by blunt refusals to entertain them.

Sellers say that they cannot budge further due to constraints on ex refinery prices which have also come under pressure from exchange rates. FOB prices are now $545-$565/t for SN 150, while SN 500 – which typically has a viscosity index of around 90 – sits somewhat lower at $525-$540/t. Belarussian SN 150 from with VI of 110 is available at higher prices in line with mainstream European products, at around $620/t, basis FCA Riga. SN 900 is available at around $645/t FCA. All these prices pertain to bulk.

Black Sea FOB prices are around $30/t higher than Baltic levels for SN 150 and SN 500, and these grades can be delivered into Turkish discharge ports for around $615-$640/t. These grades are relatively scarce with only a limited number of sellers offering them on a regular basis. SN 900 may soon be available ex Black Sea sources, perhaps opening up possibilities for supplies of this grade along with SN 500 into Red Sea destinations and beyond.

Middle East Gulf

Base oil markets in the Middle East Gulf region continue to see falling prices for Group I. Iranian SN 500 dipped again this week to new lows at around $545/t on basis FOB United Arab Emirates ports. Comments from the market suggest that prices for all Group I products have fallen by more than $100/t over the last month, and buyers are perking up.

Enquiries for parcels of bright stock are being issued to U.S. and European suppliers, but these cargoes are being offered to Far East receivers because of the arbitrage available into these areas for this grade. With landed prices offered at around $930-$975/t, margins into Far East are substantially higher than U.A.E. and Indian West Coast destinations.

The result of this activity is that bright stock may be approaching short status in the gulf region, with only a few receivers willing to entertain higher prices. Traders are targeting Far East receivers that can discharge cargoes after the Lunar New Year.

Middle East Gulf prices for SN 500 are reported between $525-$560/t, while SN 150 is going for around $540-$580/t.

Bright stock buyers are looking to take cargoes during second part of February, with CIF/CFR prices being re-jigged to take account of the options for traders to supply elsewhere. Traders are offering prices of $890-$925/t, although some buyers claim to have fixed cargoes directly from source at close the $800/t landed. U.S. cargoes are now being considered by Middle East receivers, whereas voyage times discouraged deals while prices were falling.

The oversupply pouring from Far East engulfed the Middle East, with more than enough Group II available for all receivers. Offers are fading, perhaps due to the next months Lunar New Year holidays, but many insiders say there is simply a huge glut of material floating around this market that cannot be placed in the short term, almost at any price.

Middle East Gulf receivers are flooded with offers, but stocks remain high due to recent purchases at extremely low prices – some of which have been redacted from sales documents in order to avoid publication. Some prices are estimated to be around $50-$70/t below current market assessments, perhaps as low as $585-$625/t for the whole range of Group II grades.

More commonly offers have been advised at between $655-$670/t for light and heavy grades, but with growing stocks being offered from sources in U.S., competition in this sector of the market is intense.

Africa

If there are positive strains to glean from this part of the world, they mostly come from African economies, which are starting to expand due to foreign and local investment in the infrastructure. Industries such as mining and farming are requiring new generations of lubricants that are being manufactured by a small yet growing number of domestic blenders, particularly in East Africa.

Base oil imports are growing in these regions, with some local entrepreneurs looking to join forces with external expertise to build small refining operations that could use feedstocks to produce base oils, waxes and other products.

These plans are in their infancy, but some have predicted that such operations will spring up in East Africa and beyond within five years. In the interim, base oils continue to be imported from the U.A.E., India, Red Sea sources and Russia. Current economics allow transportation of Group I and II oils to enter Africa, giving the industry flexibility to produce a greater range of finished lubricants.

Prices for small imports of both Group I and Group II base oils can be delivered into these regions at $825-$890/t, depending on quality and specification.

In West Africa, many are already negotiating deals for large parcels of 5,000-15,000 tons. With Baltic draft limitations and the requirement for more expensive Ice Class vessels at this time of year, some players are actively considering forward purchasing arrangements with drawdown provisions for later in the year.

Nigerian buyers have expressed interest in a number of offers that are currently on the table, some of which have been revamped many times over in recent months.

Prices of $608-643/t are now envisioned for Group I cargoes arriving in bulk into West Africa ports from the Baltic region and Europe, along with 3,00-5,000-ton parcels of SN 900 at around $735/t. Depending on source, bright stock prices are running around $745-$798/t, but traders and producers appear to have options to deliver this grade elsewhere, such as the Far East.

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