Crude has rallied on the back of Egyptian problems and the potential risk to Suez shipping. Dated Brent is trading above $107 per barrel for front month settlement-up some $4. ICE has also reacted to both demand and crude movements, with a $30 surge during the week to settle around $907/t late Tuesday.

Crude and gas oil hikes have little consequence on base oil prices at this time, due to sluggish demand and low sales. Ultimately there will be knock-on effects, amidst rumors that at least one base oil producer is looking at replacing API Group I light solvent neutral grade base stocks with Group II material, which will be purchased from currently-participating importers.

Group I remains almost unaltered from one week ago, between $945-$975/t in respect of the light neutral grades. Heavier material such as SN 500 is offered slightly lower at $980-$1000/t, in hopes of generating buying interest. Bright stock offers are coming off slightly as well, now in the ballpark of $1090-$1120/t.

These prices refer to FOB offers from mainstream European and North African suppliers where available.

Although the picture looks dreary for sellers, few producers are concerned about inventory; most take the view that whatever is in tank can remain in tank. Distributors and traders are more concerned, because they see routine bread-and-butter business disappearing altogether.

Large tenders, such as those of the Syrian and Egyptian General Petroleum Corporation, are not happening due to obvious reasons, and deep-sea locations are being supplied by more local production instead of the traditional sales from Europe and the U.S.

Local mainland European sales have dipped, with low demand from blenders-many of whom have stocked up with finished production and are using the summer months for maintenance and repairs. Many blenders comments this week suggest that finished lubricant stocks are high, and that demand for base oil will be low for the next two or three months.

Prices reflect the extra costs involved in serving this sector, with premiums over FOB sales and offers around 60-80/t.

Baltic & Black Seas
Baltic sales have slowed, with many distributors and traders showing low inventories due to lack of enquiries for outgoing material.

Russian export volumes are down, and Belarus auction avails are almost non-existent. Combined with poor demand and low expectations, the market starts to falter. Bids from buyers have been as low as $830-$850/t FOB-so low that most sellers would incur a loss, and therefore cannot and will not entertain them.

Offered levels have dipped from last week for the small quantities currently available from Baltic ports to $920-$930/t for SN 150 and $940-$950/t for SN 500. These are weaker than last weeks in an effort to move current stocks out of tank.

Replenishment will be difficult at these levels or below due to FCA prices ex Russian refineries being held up, with local demand within Russia running high due to the summer agricultural season. The two main grades are reported in ruble equivalent at $830-$840/t, allowing very little leeway for distributors and traders to sell FOB at current levels.

In the Black Sea, there are a few enquiries from Turkish importers, which many believe to be price-checking exercises which yield few actual sales. Again price expectations from Turkish buyers are exceptionally low versus offers received from sellers. Bids are below $900/t basis CIF Gebze and Aliaga, with counter offers from sellers at $920-$930/t CIF for Uzbek light neutrals, with Russian SN 150 and SN 500 some $10-$15/t higher.

Middle East
Base oil demand has fallen to an all-time low in near Middle East regions due to civil strife and the slowdown effects of Ramadan. Business should continue as normal, but in reality, commerce slows almost to a stop. Buyers in Jordan and Sudan stocked up before the holy month, and both sellers and buyers will postpone negotiations until mid-August at the earliest.

The same applies to the Middle East Gulf, with gradual slowdown to both imported base oils and to Iran and Bahrain exports. Indian buyers are coming out of the monsoon season, and with Middle East Gulf sellers on an almost part-time basis for the next month, business is slow.

According to United Arab Emirates sources, levels have been sustained around last weeks, but with few trades, these may not be representative of a vacuous market. Group I SN 500 is still available around $865-$880/t FOB southern Iranian ports, with re-exported material coming out of U.A.E. ports around $900-$930/t. Quantities of SN 150 and SN 650 are also reported to be available ex BIK, at some $10/t higher for SN 150, and around $30/t lower for SN 650.

Africa
The last batches of SN 500 in flexies are arriving in Durban. With reports of traders and importers finding it difficult to contact sellers in U.A.E., these may be the last imports for a month or so. Prices are still relatively high for this grade landed into South Africa, but have come down after buyers refused to pay massive premiums over reported FOB prices. Levels have fallen to $1090-$1120/t, reflecting land transportation, freight and flexi hardware cost over re-export levels from U.A.E.

Attempts to move European material into South Africa are being revitalized. There are rumors that South American Group I material has been offered into this region, but no deal has been confirmed. Its not clear which grades, but SN 300 and SN 150 have been mentioned.

Nigeria is still receiving the last round of imports from the Baltic, mainland Europe and South America, but with few new cargoes announced this week, demand may be tapering off for the next month or so. Two July cargoes are still to arrive, one loaded in the Baltic with SN 500 and a large quantity of SN 900 on board, the other loading out of the Mediterranean with bright stock and around 2,000 tons of SN 600 making up the cargo.

Delivered prices are still assessed at $1030-$1085/t for Group I neutrals, with bright stock landing at $1155-$1175/t CFR Lagos. Imports of SN 900 from Baltic will now be landed around $1070/t.

To confuse matters, there are confirmed reports of large Baltic cargo being sold into Lagos at $998 CFR for SN 500 and $1008 CFR for SN 900. These levels bear no resemblance to normal price levels, and may apply to a distress sale, where traders were forced to discharge in order to resolve payment.

Group II/III
European Group II prices have moved around since July 1. According to reports, some importers have discounted only light vis grades, but in some cases, others have decreased both light and heavy vis material. Several blenders have reported monetary initiatives for increasing sales volumes. However, the languishing European base oil market is also affecting Group II sales. Prices are difficult to coordinate and appear to be dependent on which distributor is supplying, and also where in Europe the sales are made. The overall picture appears to reflect light vis 150N and 220N between $1065-$1110/t, with the higher vis 500N and 600N between $1140-$1225/t.

Middle East Gulf Group II business is quiet due to July and August holidays. The suggested tight supply scene does not appear to have manifested, as most importers claim they have adequate stocks and indeed further offers for second half of August and September arrival.

Offered prices for August and September are therefore pitched lower with light vis grades at $1045-$1095/t and 500N and 600N landed at $1135-$1185/t.

Group III supply in Europe is approaching an all-time high, with many suppliers unwilling to cut prices any further. In two cases, producers commented that to lower price levels would be to shoot themselves in the foot. They said they would rather sell less Group III base oils at current levels than to further discount. Levels for 4 cSt and 6 cSt remain at 905-920/t ex tank.

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.