With Dated Brent crude oil at $104.50 per barrel, and ICE gas oil averaging $890 per metric ton in early week trading, base oils are becoming undervalued, and prices at worst will stabilise, if not start to rise.

European producers say they will not sell below cost merely to clear inventory. They would rather seek the gas oil pool, where better returns can be assured. Some intend to cut base oil production to cover only term contracts and in-house blending of finished lubricants. If enough production is affected, then the base oil market could quickly turn around because of higher feedstock costs.

Even with the scenario above, European API Group l prices have slackened under continued pressure from buyers who sense they have the upper hand. This situation could be short-lived as buyers quietly state that now is the time to act based on the number of enquiries being floated.

The large spread in pricing is still very much in evidence. Prices overall have dipped slightly from last week, with light solvent neutrals at $965 to $1070/t for SN 70 to SN 150. Higher vis grades are $970 to $1090/t FOB.

Bright stock continues to reassert itself at $1155 to $1200/t, although two parcels of 4,500 tons and 3,200 tons were reportedly sold for $1125/t FOB mainland Europe. These export quantities were priced to compete against U.S. Gulf of Mexico refiners.

These prices refer to bulk cargo purchased FOB ex mainland European or North African refineries. Supplies of Group l grades delivered by truck, barge and rail on the European mainland are 65 to 80/t beyond the ranges above, due to higher handling, delivery and storage costs.

Baltic and Black Seas
Many low-level deals have been reported in the Baltic, most of which have been vehemently denied by distributors and re-sellers. Prices reportedly have fallen to $840/t for a mixed cargo of SN 150 and SN 500. Suggestions are that this may be a delivered-at-the-frontier transaction, although shipping sources confirm that a cargo containing these grades was being loaded on an FOB basis.

Rumors were heard of offers between $945 to $980/t for SN 150 and SN 500, with a number of purchases being concluded at these levels. SN 900 is also available at $1000/t. Some buyers have become more alert in assessing prices from the Baltic (and Black Sea) by consulting Russian and Belarus pricing at source. These buyers, by adding estimated transportation and storage costs, have been able to bid at FOB levels which sellers could accept.

There appears to be a little more activity from Turkish buyers in the Black Sea, perhaps with some importers finding ways around government legislation regulating importation of certain base oils.

Coupled with the realisation that the market may be starting to bottom out, buyers may have started negotiations for material at present levels. Not many deals have been reported concluded as yet, although there are renewed enquiries for traditional supplies of SN 150 and SN 500. Offers have been issued at $985 to $1020/t CIF Izmit for these grades, with other offers being made at $965 CIF Gebze for a 3,000 ton parcel of SN 150.

Middle East
The Middle East Gulf is relatively quiet this week, with many players enjoying vacation season. Iranian cargoes are still being offered at $1045/t FOB BIK, with parcels of SN 150, SN 500 and SN 650 being touted at these levels. One parcel is for some 7,800/t and the other for 4,000 tons. Both cargoes are being offered into India, but with little buying interest at these levels.

Pitching against European SN 500 exports landing at $1040/t into both western India and UAE, it is difficult to figure how these Iranian cargoes can be attractive, considering the variable quality and logistical problems with sanctions.

Saudi Arabian Group l prices have fallen in line with European Mediterranean levels for SN 150 and SN 500, now between $1040 to $1090/t, and bright stock at $1200/t. All prices are described FCA or FOB sales.

Africa
South African prices have maintained a differential versus European and Far East levels, with Group l neutrals at $1320 to $1365/t, and bright stock around $1400/t. Falling Group ll levels from Far East sources have started to make indents into South African base oil prices, with numbers falling to become competitive with Group l imports and local production.

West African sources state that the whole region, with Nigeria at the centre, has come to life in the quest to replenish base oil stocks. Buyers in areas such as Ghana, Nigeria, Cameroon and Angola are flooding the market with enquiries.

Cargoes are being sought from the Mediterranean, Baltic, Northwest Europe, the United States and Brazil, and a variety of grades and mixes are being considered. Russian Group l SN 150, SN 500 and SN 900 is loading in the Baltic, whilst bright stock and heavy neutrals are being negotiated in the U.S. Gulf of Mexico. Sellers in the Mediterranean are able to provide higher quality approved grades for leading blenders of finished lubricants, whilst wholesalers and traders are concentrating on procuring lower value base stocks for local sales.

The lowest landed prices are coming from the Baltic cargoes at $1060 to $1085/t for solvent neutrals. Northwest Europe and Mediterranean sources are providing Group l combination cargoes of solvent neutrals and large quantities of bright stock for $1145 to $1275/t.

Group II and III
The Group ll market in Europe has moved down along with both Group l prices and source adjustments. Both actions have brought imported prices down to levels which remain competitive against domestic European production of Group l alternatives. With Far East producers cutting numbers by some $50/t FOB, this will certainly filter down to levels on the ground in Europe. Levels are expected to fall again this week by some $60/t, bringing prices for light vis grades to $1090 to $1120/t, and for heavier vis material, $1150 to $1220/t, all on an ex tank basis.

Group ll prices into Middle East Gulf have been maintained for July, but are ready to drop for August deliveries by $40 to $60/t. With this process taking time, and the slowdown in the Middle East Gulf, buyers are waiting until next month before committing to cargoes for early August delivery. Prices are expected to be $1085 to $1100/t for light 150N grade, with 500N at $1170 to $1210/t CFR.

Group lll has come under sustained pressure on pricing, whilst at the same time demand for these grades is declining. Increased availabilities from new Middle East Gulf sources are allowing more flexibility for buyers and restricting selling options for both importers and local European production. Prices are now assessed at 1220 to 1245/t for the 4 cSt grades, with 6 cSt material between 1245 to 1280/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.