Ironically, margins are still intact, and producers can cut prices whilst retaining valuable contributions from the base oil slates. Lack of real demand, however, is holding back an otherwise attractive market for refiners.

Some receivers located far from load ports are wary of committing to prices for large cargoes, due to downward changes soon after fixing. The use of exchanges can facilitate forward buying, but few players are aware of these possibilities, while some are too conservative to look outside the box.

API Group I levels within mainland Europe have traded ever lower, with prices for light vis solvent neutrals offered at $755-$785 per metric ton, along with heavier neutrals ranging between $735-$765/t. The movement of heavier products to be priced below lighter grades has taken many by surprise, although in mainland Europe the differential is not so pronounced as is being seen in the Baltic.

Bright stock has succumbed to current market conditions, with some buyers agreeing that prices have to come into line with other Group I levels, irrespective of this grades healthy demand. Levels dipped to $965-$990/t. There are many enquiries for larger parcels of this grade, but most suppliers appear to have quantities maxing out around 3,000-4,000 tons, which hinders shipping to Far East and Middle East, where the arbitrage is open if shipping costs can be contained.

These prices relate to export barrels offered or sold ex mainstream production in mainland Europe and North Africa.

Local/domestic markets dipped after many suppliers cut prices before or on Dec. 1. Buyers are not plentiful, however, with a number of blenders suggesting that prices still have a way to fall, and that they were only topping storage by taking smaller-than-normal deliveries. Also, many suggested that demand for finished lubes was at a seasonal low, and would probably not pick up until after New Years. One operator commented that demand had not picked up since the summer, and that they could not see anything kick-starting the market.

The differential between local/domestic selling prices has again been muddied by some sellers prepared to sell at export levels in return for lifting substantial quantities. These lower prices have been offered in respect of ex rack sales in one case, if the buyer lifted more than 300 tons of Group I grades in one purchase. The difference between export and the higher domestic levels is 10-45/t.

Further cuts have been made to Group II prices, with source reductions playing a part in the various realignments occurring in the U.S. and Far East. More Group II products are being imported into Europe than ever before, even given the dismal market into which these products are appearing. With prices in many cases now being commensurate with Group I levels, this increase in imported material comes at the expense of local Group I sales. Given the option of competitive prices for superior-quality material, many blending operations are turning over storage to Group II, with a longer-term view that these grades will overtake Europes Group I.

Prices have become somewhat clearer, with light vis grades from the premier suppliers still maintaining a premium over Group I at $845-$875/t, with the heavier ends around $855-$900/t. The second-tier grades (without many original equipment manufacturer approvals) are slightly lower, closer to Group I levels, at $775-$800/t for the light grades, with the heavier 500N at $785-$815/t.

Group III grades, whilst under buyer pressure to move in line with other product groups, do not appear to have reacted as dramatically as Group I and Group II base oils. Perhaps because of the way in which these grades are delivered or collected from storage, they are protected from the onslaught of price cuts which have affected the remainder of the market. Nevertheless, Group III grades, and blends containing Group III input, have been modified by sellers to accommodate buyers expectations.

With 4 cSt and 6 cSt grades almost joined at the hip, levels of $840-855/t basis ex tank are available for December delivery or loading.

Baltic and Black Sea

Baltic trade had been increasing, with a number of traders and end-user buyers beginning to believe that the market would not fall much further. Suddenly buyers are looking for further decreases, believing that the market may have further to slide and that Russian exports will be the first indicators of that. Some deals last week have been renegotiated, causing problems for sellers and also for available shipping possibilities.

Prices for export grade SN 500 from main load ports has retracted to $725-$730/t basis FCA, with SN 150 pitched at around $770/t, the difference mainly due to avails and spec. The SN 150 is comparable to mainstream production within Europe, whilst SN 500 carries a slightly lower spec.

Sellers are also very much aware of potential exchange rate movements between the dollar and the euro, which could help stabilise prices ex Baltic. Purchases made in euros could be affected if it strengthens against the dollar in December.

Quantities of a lower-spec bright stock are being made available ex Baltic at around $875 FCA. A number of traders and West Africa receivers have expressed an interest in obtaining this product, although quantities available are unclear, and may be restricted due to port storage capabilities. SN 900 has been available for some time ex one southern Baltic port, but no confirmation has yet been received that this parcel of some 3,000 tons has been sold. Prices would be expected at around $830/t basis FOB.

Black Sea business has continued to favor imports into Turkey from European Mediterranean supply points, with a number of 2,000-5,000-ton cargoes cited. With Mediterranean levels pushed downward, sellers have welcomed opportunities to sell into this market. Traditional Russian supplies have dwindled to a mere trickle due to continuing civil unrest around transit and load ports. Uzbek material ex Fergana appears to have been spurned by Turkish receivers, raising the question that perhaps the Mediterranean supplies of base stocks would meet the original Syrian specs required, and may be forming the basis of cross-border imports into that region.

Russian grades are still being delivered into Syrian ports with material being loaded ex Crimea.

Prices for Mediterranean Group I material going into Turkish ports such as Gebze are assessed at $810-$825/t in respect of SN 500, with bright stock priced around $1040/t, all basis CIF.

Middle East

Reports indicate that Middle East Gulf regions will continue to utilize Group I along with Group II and Group III in the future. Bright stock is in particular demand. Prices for local supplies have drifted downward, with Iranian Group I SN 500 priced at $745-$765/t in dollar equivalent terms ex southern Iranian ports, with re-exports from United Arab Emirates levied around $15-$25/t higher on an FOB basis.

Imported Group I grades ex Saudi Arabia, as well as locally produced material ex Kuwait and U.A.E., have all drifted down, with solvent neutrals at $815-$835/t. Bright stock price expectations are extremely low from Middle East Gulf receivers, with a number of buyers targeting just above $1000/t delivered U.A.E. Realistically, offers are being made for material ex U.S. and Europe at $1065-$1080/t, which will include a two-port load out of Europe, or an extended ocean transit time from the U.S. Offers last week were dismissed as too high, but with year-end approaching, a middle ground may be reached soon.

Group II cargoes are planned for import during January into U.A.E., Qatar and Oman, and with the imminent start-up of the Group III and Group II Takreer plant at Al Ruwais, this region will become a major export center, particularly for Group III base stocks. The extra 100,000 tons of Group II production will more than satisfy immediate local requirements, but of course will add to an increasing global oversupply.

However, until this plant becomes operational early next year, imported Group II will take front stage. Far East offers are being mixed with U.S availabilities, and are all serving to drive price downward. Offers for the light vis grades 70N through to 220N were $835-$865/t, with some for 500N and 600N around $10/t lower.

Africa

South African importers are showing great interest in imports of SN 500 ex Baltic in flexi bags. Enquiries have followed reports last week that this activity had taken off in the light of competitive numbers from the Baltic regions. Other importers in East Africa have also made enquiries regarding these avails and traders are now reverting with offers for supply in January and February. Prices are believed to be $950-965/t CIF East African and South African ports, depending on numbers of containers.

Nigerian buyers have sometimes been forced to purchase imported material, even if they preferred to hold off until the market had settled. To prevent against stock-outs, parcels of Group I base oils have had to be fixed to cover blending and wholesale demand. A number of importers did not want to commit so early, but have at least provided continuance of supply. Two cargoes have been loaded or are loading out of the Baltic and northwestern Europe, with another loading out from Spanish or Italian Mediterranean.

Prices had to be trimmed to gain acceptance, with two cargoes sold on an index-linked basis. One cargo is rumoured to have been sold on a basis of an index-linked number based on discharge date. With a three-week minimum voyage time, this is brave (or desperate) trading. Landed levels are expected at around $855/t in respect of quantities of SN 500 with Baltic Russian spec SN 900 at $925-$945/t.

Bright stock offers have been received as part of these and future cargoes and additionally as standalone parcels at $995-$1065/t depending on quality, source and parcel size. Group II offers are still on the table with a few receivers in Nigeria, but against the scenario of a market descending further, the waiting continues.

Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly atpumacrown@email.com.