Crude oil rallied based on positive Euro economic sentiment over Spain, but with markets disenchanted over Spanish progress, Dated Brent has retreated to around $97 per barrel for front month settlement. Future pricing for Dated Brent is stable to weak, with lower levels for second and third month forwards. ICE gas oil gained by some $8 per metric ton from last weeks low, but has fallen in line with declining crude levels. Vacuum gas oil as a major base oil feedstock has fallen to two-year lows.

API Group l prices in Europe are reported lower this week, with evidence of mainstream producers willing to negotiate down on last weeks numbers for second half June supplies. Levels are assessed at $1230 to $1255/t for the light grades. Heavier grades have come off more, with SN 500 generally available at $1250 to $1270/t with bright stock still priced across the heavy neutral band at $1245 to $1280/t.

These prices refer to bulk parcels of mainstream base oils loaded ex producers in Northwest Europe, the Mediterranean and North Africa. Local deliveries made by truck and barge within mainland Europe are priced higher at $65 to $80/t.

Baltic and Black Seas
Baltic supplies are flowing from Russian and Belarus refineries, with refiners cutting FCA selling levels to move material. Prices may spiral downwards, with traders looking here to load product for deep sea locations such as Mexico, the United States, South America, and the West Coast of Africa. FOB levels for SN 150 and SN 500 are at $1145 and $1150/t, respectively, with SN 900 at $1185/t. Buyers feel could drop another $50 to $60/t before these grades begin to move.

Black Sea business has been dire, raising the possibilities for large parcels to be moved to the west coast of India or Middle East Gulf. Offers for Black Sea material are circulating around India, but so far have met with little buying interest due to the season, weak currency and lower prices.

Levels have been quoted for FOB sales at $1105 to $1130/t for SN 150 and SN 500, but with high transportation costs, final prices have been deemed uncompetitive.

Middle East
Middle East Gulf supplies of Iranian SN 500, SN 150 and SN 650 have all but disappeared. Sanctions against Iranian exports have severely curtailed base oil movement from southern Iran. Material which used to flow to India, Malaysia and Vietnam has stopped abruptly due to shipping problems. One parcel for some 7,000 tons of mixed Group l grades appears to remain unsold ex BIK, whether because of price or logistics is not clear.

UAE continues to take small cargoes of Iranian material and is reselling parcels in flexibags to India and East Africa. Prices ex tank for FOB UAE are around $1175/t for SN 500, with SN 150 around $1155/t.

These prices make it very difficult for the arbitrage to open from the Black or Baltic seas at current selling levels, but Iranian quantities and supplies may be limited, hence the opportunity may exist to move material from these more distant locations, with another few nudges to FOB levels.

Another aspect in the Middle East Gulf has been the lowering of June prices for all Group ll products from the Far East where these grades are long. About 23,000 tons of Group ll grades are being loaded for the Middle East Gulf, where Group l grades would have been utilised previously. Group ll grades have become competitive with Group l material due to low demand and higher production in the Far East.
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Other parts of the Middle East and East Africa have been quiet, with many buyers in Sudan and Tanzania reluctant to commit to purchases. Saudi Arabian SN 150 and SN 500 are being sold FCA or FOB at $1245 to $1275/t, with bright stock at $1325 to $1355/t.

Africa
South African importers have launched enquiries for base oils to be delivered to Durban in flexibags. These are not to arrive until July. With falling prices, Group ll grades are preferred to Group l.

West Africa has seen several cargoes to Ghana, Senegal and Cote DIvoire, with a suggestion that one vessel may be delivering into some area ports and may then move on to a final discharge in La Plata, Argentina. This has not been confirmed as yet, but sources have suggested that this could be a repeat of cargo movements which took place a couple of years back.

Nigeria still plays the waiting game with traders issuing large counters to suppliers in Europe and the United States for Group l and Group ll material. Importers are reluctant to commit since the local feeling is that base oil FOB prices are about to fall further.

Reports are that FOB bids of less than $1055/t for solvent neutrals have been received by distributors in the Baltic from Nigerian importers, and whilst these levels have declined, this countering sets the scene for what might be about to emerge on prices. Prices at these levels would allow landed numbers at $1190 to $1215/t basis CFR Apapa port for Group l solvent neutrals, with SN 900 at around $1245/t. Bright stock where loaded from mainland Europe along with Baltic grades could be delivered at $1340 /t.

These levels are below the most recent deliveries by some $120/t, confirming the rate and ranges of the possible falls in prices into this region.

One cargo is understood to be landing at $1345 to $1380/t for Group l neutrals, with a quantity of bright stock following a two-port loading, at $1345/t basis CFR.

Group II/III
Group ll grades have become suddenly long in supply terms, with Far East producers unable to move increasing production into China, Southeast Asia and India. Prices from refineries in Korea, Taiwan and United States have started to fall, with these grades aligning with Group l prices. Until now, prices in Europe had remained relatively stable, but pressure is on importers to cut levels to bring these grades into line with Group l.

Numbers have fallen this week on reports from a number of receivers and blenders in mainland Europe, and levels are expected to pan out at $1280 to $1320/t for the light vis grades, with heavier grades being sold ex tank at $1345 to $1390/t, but with more movement still to come on these price levels.

Middle East Gulf prices for Group ll have fallen considerably and are now coming into UAE at $1220 to $1230/t for the light 150N grade, with 500N being landed at $1300 to $1320/t

Group lll base oil prices are being trimmed by some suppliers, and with FOB prices in the Far East now some $250 less than ex tank prices in Europe, the writing may be on the wall. There were reports this week of one importer offering 4 cSt material at 1287/t ex tank. It is expected that Group lll prices will start to fall to maintain the theoretical delta of some $500 /t over Group l solvent neutrals, with adequate supplies now being reported throughout the region. In the meantime prices are now 1320 to 1365 /t for 4 cSt grades, with 6 cSt material being sold ex tank at between 1390 to 1420/t.

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.