Dated Brent crude has retreated to around $108.40 per barrel, down some $7/bbl since last week, but still trading within a relatively narrow range. ICE gas oil is hovering just below $1000 per metric ton, with sudden spikes taking levels to $1015/t and then falling back. There is no widespread downward momentum to crude or product prices, and without this impetus petroleum product levels will remain strong for the short and medium term.

Refiners throughout Europe say they will cut back on base oil production, which could ultimately leave a void in the market for supplies of API Group I material. The temporary solution may be to substitute with competitively priced Group II grades, which are long in supply from a surge in new Far East production.

With the two opposing dynamics of rapidly increasing production, coupled at the same time with falling demand, the scene is set for meltdown. Many Group l suppliers are testing the waters to get out of the base oil business altogether, with companies such as Essar at Stanlow making just that decision. Other mainstream suppliers have cut runs by as much as 40 percent, which is possibly around the lower limits for continuous production of base oils.

Pricewise the market is stagnant. Buyers either do not require material or decide that prices are too high, whilst sellers face selling material at losses, or at least at levels which are negative to alternative production of gas oil and diesel.

Levels for Group l base oils have not moved since last reported. Numbers are weak and almost static between $1030 and $1045/t for the light solvent neutrals, with heavier neutrals between $1045 to $1060/t. One solitary offer for bright stock heard this week was reported at $1085/t, providing a basis for a nominal range of $1085 to $1100/t.

Prices above refer to FOB levels for mainstream supplies, loading ex refineries in NW Europe, Med, and North Africa, where avails allow.

Local supplies of base oils within Europe have fallen in price again with differentials between export cargoes and truck supplies now at all time lows, around 55/t. Some reports reflect much higher local pricing, but with discounts, TVAs, and other adjustments, net prices are closer to the differential level above.

Baltic & Black Seas
Baltic business for Russian and Belarus Group l remains extremely dull, with a few random enquiries for supplies of SN 150 and SN 500, with quantities of SN 900 added to increase parcel sizes to aid freight elements. Levels for the offers are between $1025 and $1045/t for the main grades with SN 900 offered at $1065/t, all basis FOB Baltic ports.

Serious buyers are countering these levels with bids around $970 to $1000/t, but distributors and suppliers comment that these levels are too low; they cannot buy stocks to replenish at these FOB levels.

The announcement that Belarus supplier Naftan will commence operations to produce a Group III 4 cSt product next month was greeted with reposts of bad timing, given the Group III supply scene developing within Europe.

Black Sea activity was muted with Turkish buyers having yet another set of government regulations for importing base oils. These regulations are designed to eradicate the use of base oils as a diluant for gas oil and diesel as a road fuel. Base oils carry lesser duty than fuels, and hence can enhance margins. Normal imports of Russian SN 150 and SN 500 have been scant with only one trans Black Sea cargo identified this week. CIF prices were unconfirmed by receivers, but sellers reported that FOB levels of $1015 to $1020/t were currently indicative of this trade, with estimated freight for 3,000 tons around $35 to $40/t.

Middle East
Near Middle East business remains quiet with Egypt not buying full contract volumes. With Syria and Lebanon obviously sidetracked, this region is not showing any signs of upturn in base oil activity. Sudanese receivers have come on the market for supplies of Group l, but with monotonous regularity it appears the business will go back to incumbent suppliers who can deliver in the small lots which required due to limited shore storage facilities.

Middle East Gulf regions such as UAE are still maintaining the flow of Iranian SN 150, SN 500 and SN 650 as re-exports from ports such as Jebel Ali and Hamriyah; large quantities of this material have been offered for delivery to Turkey. Prices are confused. To compete with latest Russian and Brazilian supplies made into Gebze, the FOB levels for these grades would have to be around $975 to $990/t, exceptionally low for Iranian Group l grades. Turkey does have a favoured nation clause under current sanctions which could allow direct sailing from southern Iranian ports to make freight savings, but finding international vessels to undertake the loading and voyage could be nigh impossible.

Prices for other offers ex UAE have been reported at $1045 to $1060/t for SN 500.

Africa
East African buyers are reserved, and few enquiries are emanating from these regions. Durban continues to send enquiries for Group l SN 150 and SN 500, most of which is being delivered in flexies from UAE sources. Prices are assessed at $1275 to $1320/t basis CIF Durban, but there are examples of Group II material with obviously higher specs being offered from Far East sources at competitive prices. Lead times are extended for Far East supplies, but with forward planning at least three or four receivers are opting to buy these quantities.

West Africa is now receiving the last wave of cargoes from Europe and the Baltic, with receivers looking to negotiate new arrivals for December. Traditionally year end has been a good time for West African buying, but with the base oil market in its current state inventories will be low, and perhaps the buying opportunities will not quite exist as normal.

Prices have been confirmed as per assessments made over the last few weeks for base oils arriving into Nigeria. Basis CFR Apapa, levels are reported by customs and agents as $1125 to $1140/t for Group l solvent neutrals with bright stock at $1190/t. Baltic cargoes of solvent neutrals have been landed at prices around the same levels.

Group II/III
European Group II trade has come under pressure stemming from the Group l supply scene. Prices are being forced downwards, along with falling sales and possibly increased imports. Most distributors are trying to hang on to market share and retain customers even if lifting patterns are lower than a few months back. Once again demand is the missing factor. Prices now fall into bands of $1145 to $1170/t for the light vis grades, and $1185 to $1250/t for the heavier material

Middle East Gulf sales of Group II are now competing with Group l grades, the former being much more available due to Far East oversupply. Prices are depressed along with delivered volumes, with levels now directly reflecting the falls in the source regions in China, Korea and Taiwan. Levels for November cargoes are $1025 to $1070/t for 150N, and 220N, with 500N/600N landed CIF at $1110 to $1145/t into UAE ports.

The scenario for Group III within mainland Europe has completely reversed over the last few months. From a high margin, high demand, tight market to a situation where the European mainland is awash with imported and domestically produced material. At the same time demand is falling in line with other base oils. Even without the new production from Bahrain and Qatar it would be hard to see how the market for this material could have been sustained.

As mentioned above, with new production hitting the market from Belarus (only 4 cSt at the moment), finding receivers for increased production looks extremely difficult. Current incumbents are trying to hang onto market share by cutting prices and waiving contract commitments.

Group III prices have dipped again this week and numbers being reported are 1055 to 1080/t for the 4 cSt grades, with the heavier 6 cSt material at 1080 to 1100/t, all basis ex tank.

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.