A laissez-faire attitude has permeated most API Group I markets from the Baltic to the Mediterranean, which has affected West Africa, Russia and the Middle East.

Volumes dont appear to concern sellers, so long as market share remains relatively constant for domestic and local sales. The glamor of selling large Group I parcels for export seems to have faded, and with reduced base oils production, sellers will be able to supply base oils as required, instead of frantically marketing their wares with reduced levels.

Buyers meanwhile have accepted this modus operandi and are no longer looking to chop and change supply routes. With export markets slowing in terms of available selling locations, there could be downsizing or changing direction for some traders involved solely in base oil business. Other petroleum products are beckoning to some, whilst others are looking to see how Group II and Group III base oils will be distributed, whilst considering if there is any mileage for traders in this sphere of operation.

Fundamentals are weaker, with crude back around $107.75 per barrel for front month futures. Dated Brent is in line with forecast demand. These levels are some $2 lower than last week, with ICE falling another $30 per metric ton this week to close to $900/t, the lowest since July.

Lighter vis solvent neutrals are $990-$1015/t, with medium to heavy material commanding increased values due to higher demand at $1020-$1045/t. Bright stock prices reflect steady demand for large parcels to West Africa and also smaller lots used for in-demand finished lubes such as marine cylinder oils. Bright stock levels vary according to quantity and location, between $1095/t for large parcels, up to smaller lots of 250-700 tons around $1145/t. These numbers refer to offers heard, but with no conclusive export sales, further erosion to levels may be expected.

The prices above refer to FOB offers and sales ex mainstream producers within mainland Europe and North Africa where availability of grade mix and quantities allow transactions.

Producers within the European mainland appear to be concentrating more on local or domestic business, ensuring that market share for their production is not being eroded by incoming alternatives of similar grades from sellers in Eastern Europe, Russia and Belarus. According to comments this week, demand for base oils within various western European countries markets has expanded over the last few weeks and has shown considerable buoyancy in what is otherwise a rather dull market. It is believed that in some cases, limited avails have been diverted away from possible low contribution and poor netback export business, to provide cover for local sales to blenders.

As for the cause of this mini surge, some cite inventory replenishment while others note that demand for some finished lubricants returning to levels of four or five years ago. With Mediterranean markets still under the cosh, whilst northern markets are certainly making progress, the picture is sporadic. With this positive sentiment, sellers have been keen to maximise margins but not at the risk of losing market share.

Prices are maintaining an increasingly healthy differential against export levels with variations around 75-120/t over cargo levels noted above.

Baltic & Black Seas
Realistic levels in Baltic regions are between $985-$1020/t for SN 150 and SN 500. With SN 900 in demand and hence carrying a sellers premium in some cases, levels are heard at $1100/t. Bids been heard some $100 below these numbers, noted by sellers to the extent that those with these bids will not be favoured in future dealings.

Black Sea trade has been thin with Turkish buyers still not fully back into the base oil markets. Russian material remains available from northern Black Sea locations such as Theodosia, Yugny, and Azov.

Sellers and buyers are considering both FOB and CIF sales and another large parcel is being examined for export to Middle East Gulf or the west coast of India. FOB levels are similar to Baltic levels between $975-$1020/t quantities of 2,000 – 4,000 tons of SN 150 and SN 500 either loading separately or combined.

Middle East
Middle East woes continue, and base oil trade is almost non-existent. Whilst civil strife plagues Syria and Lebanon, economic problems threaten Egypt, with government funds for imported base oils severely restricted.

Israel continues in an almost cocoon, supplying most of the countrys base oil requirements from the refinery at Haifa, and even looking at some base oil exports to nearby territories such as Cyprus.

After the exodus of material from the Red Sea following Ramadan, trade appears to have lessened with only a few loadings reported from Yanbu and Jeddah.

Middle East Gulf traders have returned, with cargoes of Iranian SN 500 going to the west coast of India and Port Klang. Prices are still exceptionally low, rumoured around $780/t equivalent offered for prompt sales of SN 500 out of BIK. It is assumed that thee transactions are made in cash in local currencies, and the USD pricing may be subject to many factors such as currency exchange and part barter.

Prices offered for delivery into Mumbai anchorage for parcels of 5,000 tons have been heard around $1065/t CFR, competing with local supplies sold in rupees. With freight around $55/t and handling in United Arab Emirates around $30/t, this still appears to be sound business. Indian buyers, aware of FOB and handling costs, have been pushing for lower offers, and in some cases have succeeded.

Group I arriving into U.A.E. and Oman are mostly sourcing from Saudi Arabia as an addition to local production of higher quality spec material. No Group I products are moving either from Europe or Far East since the arbitrage required to move these cargoes is just not there at the moment.

U.A.E. traders continue to load flexies for East and South Africa and assure that these parcels are not of Iranian production, but it is difficult to see how blends of Indian, Pakistani and local can fill this void. Specs are certainly better than Iranian material with some offers of SN 500 with VI of 95 min. and less than 2.5 of color.

U.A.E. traders Gulf Petrochem appointed a new Global Head of Base Oils, a candidate who spent much time in Nigeria developing the base oil business, and latterly in Geneva working with another trading organisation on base oil.

Africa
South Africa remains below the radar on base oil prices with few changes to delivered levels throughout the region. One important aspect of South African supply is that delivered prices range enormously, due to the distances involved in trucking material from refinery storage to blenders who may be located hundreds of miles away. FOB levels are difficult to establish other than for export cargoes from this region which are almost non-existent due to capacity and demand from South African third party blenders, a fraternity which appears to be growing.

West African receivers maintain their outlook that base oil prices will fall, and that market is overpriced. Offers for cargoes continue to be made to receivers in Lagos, but with counters providing ammunition for the Baltic bids, little trade is actually being conducted.

One enterprising trader has drawn Nigerian importers attention to the prices being paid by Ghana under the terms of the recent tender, which are comparable to keen prices being offered into Nigeria at this time, around $1083-$1128/t in respect of Group I solvent neutrals, with bright stock around $1213/t basis delivered. This comparison has held little sway with Nigerian buyers, who reckon they are able to purchase at some $30-$50/t less, utilising Baltic supplies of SN 500, with SN 900 at around $1145/t basis CFR Lagos.

Group II/III
European Group II prices remain unaltered with the latest round of source instigated increases apparently holding without too much tinkering with total value added and other discounting. Levels for 150N and 220N are around $1090-$1155/t and the heavier 500N and 600N are between $1185-$1255/t. These prices apply to ex tank or ex rack numbers applicable to stocks either in northwestern Europe or the Mediterranean.

Group II supplies in the Middle East Gulf regions have been under review by sellers but attempts to increase October delivered levels appear unheard. Buyers are commenting that where Group II supply is concerned, they now have choices of where and whom to purchase material from, and this has provided an edge in negotiations. Although most suppliers pricing is closely grouped there can still be savings of some $5-$10/t. Offers are between $1075-$1090 for light vis 150N and 220N, with heavier grades up to 600N offered at $1160-$1175/t for October arrival in Middle East Gulf ports.

Group III prices within the European mainland remain as reported without impetus driving these numbers higher. Exchange rates between USD and the euro are causing headaches for suppliers with the dollar weakening against the euro by around some 5 percent, and at a time when suppliers are finding it hard to push through increases. Sellers have tried to use the exchange argument to hike price levels but this has met with resistance, with some buyers offering to buy in dollars. Demand appears to be slightly up for these grades, but with an obvious oversupply, it seems prices will stay where they have been– 965-985/t for 4 cSt and 6 cSt.

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.