Many producers have sent out offers with substantial discounts applied to previous prices, but with few takers. Many producers are talking about cutting back on production, but as of this week, no such action is confirmed.

The problems facing refiners are mounting, causing damage to realisations and netbacks for base oils. On the one hand the market expects prices to come down sooner rather than later, but at the same time fundamentals are rising. Dated Brent crude oil rallied to around $111.25 per barrel, a gain of some $3 over the levels seen seven days ago. Crudes throughout the region have reacted in the same manner, affecting refiners in Middle East Gulf, South Africa and mainland Europe to the same extent. ICE gas oil front month is showing some $40 per metric ton higher than last week at $952/t. These are all signs pointing to increasing base oil prices, not discounting to move inventory out of storage.

Because other regions around the world are affected to a similar degree, no arbitrage scenes are opening up. A number of traders have tried to work cargoes from mainland Europe and Russia to areas in deep sea locations, but with the exception of West Africa, not many of these situations appears to be working.

For light solvent neutral grades, SN 100 and SN 150, offers seen this week are $1145 to $1170/t. The heavier neutral grades, where SN 500 and 600 have seen some distinct discounting, are $1160 to $1210/t. Bright stock has also weakened somewhat against last weeks levels and now comes in at $1385 to $1420/t.

Suppliers of large composite cargoes have been tempted to offer even lower prices, but are fearful of tilting the incline too far and sending prices into freefall. They are sitting tight at the moment trying to gauge how much they can prise out of the current scenario.

Prices of Russian material in the Baltic has taken a tumble this week, with SN 150 and SN 500 now bid at $1045 to $1080/t. Suppliers in the Baltic ports are trying valiantly to keep levels as close to $1100 as possible. Last week traders were looking at achieving levels around $1100/t, but views have changed within a few days, and now buyers are looking for prices some $25 to $50/t lower. The market believes these sellers more than others in the European arena must move inventory through their tanks to keep the system mobile. If bottlenecking occurs at shore storage, this has an impact on material being moved to the various loadports by rail from the refineries.

Causing some concern in the region, one of the major suppliers is short of product due to two refineries going through turnarounds, affecting the overall quantity of base oils available for export from Russian sources.

Black Sea sales have been reignited by the possibility of much lower prices, and the Turkish market appears to have come to terms with the import tariffs imposed last month on all base oils entering the country. Buyers are very active both for regional imports and also for export cargoes to Syria, Greece and Romania. Prices for SN 150 are now around $1085 to $1100/t basis CIF northern Turkish ports, with SN 500 sold around $5 to $10/t higher.

Two large cargoes from Iran appear to have been booked to transit Suez destined for Turkey, but how the economics stack up is a little confusing. It is difficult to see how even a cargo of 10,000 tons from the Middle East Gulf can compete with local Black Sea supplies from Russia and Uzbekistan. The netback FOB value for such a cargo would have to be around $1000/t weighted for all grades. This price level has not been seen out of Iran as yet, where prices are estimated to be around $1085 to $1110/t for the range of solvent neutral grades.

Iranian material is still being offered ex UAE for re-export to India and East Africa, where the milk run has been started again after some deliberations regarding Somali pirates. One vessel is loading and will sail to ports such as Dar-es-Salaam, Mombasa, and Beira, discharging small bulk quantities for receivers in each of these ports. Prices are relatively high at around $1340/t for SN 150, $1360/t for SN 500, and bright stock coming in around $1625/t. East Africa is also being supplied by flexibag; these deliveries compete with the bulk prices offered from traders ex UAE and Singapore.

West African cargoes are presently being negotiated ex Baltic. As a number of Nigerian receivers use these grades instead of the premium material from mainstream European refineries, prices are expected to dip. Numbers such as $1150 to $1200/t are being paid for the API Group l solvent neutrals, and a premium of some $75/t is paid for the high vis SN 900 grade out of the Baltic.

Mainstream prices will be some $60 to $100/t higher than for Russian, with bright stock delivered CFR around $1475 to $1525/t. The premiums on these deliveries reflect both higher FOB numbers attributed to spec and higher quality, and also higher freight for approved vessels which are required by mainstream sellers at loadport.

Group ll imports into European mainland have remained low key, and have maintained their differentials in price relative to Group l grades. Prices are around $1225 to $1300/t for light vis products, and heavier 500N is sold ex tank around $1315 to $1400/t. These lower prices echo source price reductions in the Far East, with other sources maintaining ex refinery prices in the light of higher feed stock costs.

Group lll prices have at last come under the spotlight, with the announcement that production has commenced at the new Neste-Bapco Bahrain facility. This additional input to the market along with supplies from the Pearl project in Qatar will add stimulus to the market both directly and indirectly. The availability of more material will ultimately have an effect on prices, but players in the industry have commented this week that they expect demand for Group lll to rise faster than any other base oil type. Further Group lll plants are now under construction and will eventually contribute to an ultimate shift to these types of oils in years to come.

Group III prices within the European mainland continue to be relatively high, at 1370 to 1410/t for 4 cSt grades, and the 6 cSt material is hitting the market at 1375 to 1455, basis ex tank sales from NW Europe and Mediterranean satellite storage.

So EMEA is a weak and uncertain marketplace with decreasing demand and lower uptake rates for base oils, driving prices lower. On the other side of the coin, crude and feed stock levels are increasing. Who would be a base oil producer right now?

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.