Crude prices have fallen to levels not seen since 2008, with dated deliveries of Brent crude at $43.20. West Texas Intermediate had fallen as low as $36.50 but recovered on Tuesday to $39.30. The overall rapid de-escalation affected all feedstock prices, with VGO levels falling to new lows as well.

ICE gas oil prices are also down, at $427 per metric ton, around $50/t less than last week. This has given rise to speculation that further drops in both crude and product prices are on the cards due to weakening demand from large economies such as China and increasing worldwide availability of crude.

Europe

API Group I prices within Europe have fallen to new lows. Some producers have been increasing output of Group I base stocks to meet what is perceived as healthy demand for at least the heavier grades. Despite production of light solvent neutrals being curbed in response, prices dipped to $485/t-$495/t, with offers above $500 met with strong counters.

Heavier grades, from SN500 upward, are being sought by a number of traders and local buyers, but even so offers have been countered by more than $50/t, with buyers taking notice of decreases in other markets such as the U.S. Levels for SN500/600 export grades are taken back some $40/t to $555/t-$570/t, with counters still knocking these prices.

Bright stock has also succumbed to pressure, falling to $880/t-$910/t. Demand is healthy, but there appear to be more avails, perhaps as a result of increased production.

The prices above refer to FOB levels in respect of export parcels of Group I base oil being made available ex mainstream European sellers. With the restart at a Moroccan refinery still not confirmed, North African markets are lacking core supplies and are being supported by mainland European Mediterranean production to maintain blending operations in neighboring countries.

Local markets rallied this week with a raft of buyers looking for replacement stocks, but at the right price. Many enquiries are being handled by sellers, but completed business deals are rare still, with buyers holding out for lower numbers. A definite split between sellers’ and buyers ideas has spurred remarkable counters. Some buyers said they are looking for prices around 75/t lower.

The differential between local or domestic prices and export sales has been particularly difficult this week, with both moving quickly. With premiums applied, local sales of Group I base oils are still 50-65/t until some clarity evolves.

Some Group II European prices are starting to weaken, as a result of Group I levels falling back, and also with source producers in the U.S. and Far East announcing discounts in some cases of more than $60/t for the lighter vis grades. Heavier vis material such as 500N and 600N grades do not appear to have been affected.

However, even heavier grades will come under scrutiny if Group I high vis grades continue to decline. Prices for the light grades are moving downward and are snap-shot priced this week at $645/t-$690/t, with heavier products 500N and 600N at $770/t-$835/t.

Group III prices are coming under the spotlight as many players return from vacation looking to set up supply contracts for the remainder of the year. With suppliers acknowledging that prices have not materially moved for some months, and that market conditions are not as they were, some sellers have offered voluntary discounting for September supplies, with some even granting retrospective adjustments to lifted August material.

This nearly unilateral action will possibly create some price revisions in coming weeks. Numbers are 865-885/t for 4 centiStoke grades and 6 cSt grades are 870-895/t on basis of loading ex tank Antwerp-Rotterdam-Amsterdam.

Baltic and Black Sea

Russian and Belarussian Baltic prices are a mixed bag, with some levels dipping in line with European mainstream levels, while other in-demand grades such as SN900 have actually increased in price. SN150 is lower, at $475/t-$490/t, with SN500 falling back by $10/t to around $585/t FOB.

Present prices are reflecting material purchased from Russian refineries some three to four weeks ago, and subsequently reselling levels have fallen during this period. Distributors are trying to maintain levels so as not to sell at a loss, although this may pose a problem in the short term.

SN900 is offered at $745/t on FOB terms, although another supplier is offering it at below $700/t FCA. Larger quantities are being discounted.

Trans Black Sea cargoes, in addition to Mediterranean supplies, are still in evidence going into Turkish ports such as Gebze. Prices for SN150 and SN500 are around the same for Russian export as for those supplied from Italy and Greece, ranging from $525/t-$585/t CIF.

Bright stock ex Mediterranean suppliers can be made available at around $925/t CIF Izmit or Gebze ports, when delivered with other Group I solvent neutral grades.

Lower spec SN150 is offered at $495/t CIF Gebze or Izmit, but some Turkish buyers appear to spurn this grade at the moment, preferring to pay a premium for higher quality.

Middle East Gulf

Middle East Gulf markets have calmed after the floodgates appeared to open for Iranian material. Only another couple of parcels have been loaded for the west coast of India, both out of the United Arab Emirates.

There is much interest in the next tranche of avails which will be released shortly from Iranian producers. Prices are being withheld at the moment but assumption is that levels will either be commensurate with, or lower than, current levels of $470/t for SN150 grades and around $480/t for SN500 material, FOB.

Iran has been granted temporary relief for various exported goods – including base oils, it appears – and with the reopening of several western embassies in Tehran, the lifting of sanctions could be ratified as soon as October, with full trading between Iran and the West returning as early as next spring.

Several receivers in Middle East Gulf are issuing enquiries for parcels of bright stock which have been circulated around Europe as well as U.S. potential suppliers. With Group I products being discounted in both producing regions, imports of bright stock into the U.A.E. and other parts of the Middle East Gulf are now feasible, with the arbitrage open.

Forecast prices for large slugs of bright stock entering this market could be around $975/t basis CIF/CFR, although some buyers in U.A.E. are reported to be looking for sub $925/t.

Theres been few reports of Group II business between either Far East or U.S., but sources yesterday confirmed that with recent reductions in posted prices for lighter vis products from U.S. producers, there was interest to pursue imports. Middle East Gulf buyers, however, are looking for discounting to be applied to heavier grades, which are more widely used in local finished lubricant production.

Prices are expected to be adjusted downward into line with Group I levels, in light of crude and feedstock moves and regional buyers calling the Group II markets long. Whether importers will be sufficiently motivated to bring Group II prices down to Iranian export levels is another matter. Offers are $615/t-$630/t for the light vis grades with the heavier products 500N and 600N still $775/t-$790/t basis CIF/CFR.

Africa

The 11,000-ton parcel ex U.S. Gulf Coast for discharge into Durban during September has been confirmed, but the composition of the cargo remains private and confidential.

Nigerian receivers reported the arrival of two parcels of base oils from Baltic and northwestern Europe, whilst a further 7,500-ton cargo of SN500 and SN900 from Baltic suppliers is on the high seas now.

Buyers in West Africa have expressed surprise that levels for base oils have not yet decreased given crude and feedstock changes. Some say they will wait another few weeks before committing to large parcels, although getting coverage for all requirements from sources such as Baltic is becoming more difficult.

Receivers are looking to U.S. sources for Group I, and in one instance have considered taking Group II light material as a replacement for light solvent neutrals. It was pointed out, however, that use of these lighter grades is limited in this market and quantities may be relatively small.

Prices for cargoes recently arrived into Nigeria are $555/t-$630/t in respect of solvent neutrals SN150 through SN500/600. Accompanying bright stock parcels are $995/t-$1025/t delivered with SN900 ex Baltic around $810/t.

No further reports have been gleaned regarding Kaduna refinery operations, although local sources in Lagos said they will never receive base oil production from Kaduna due to local technical restrictions and production problems which would be enormously expensive to overcome.

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