Dated deliveries of Brent crude rose to around $55 per barrel then dropped back to around $53.90/bbl for February settlement in late Tuesday trade. West Texas Intermediate crude now lies at $50.80/bbl. ICE LS Gas Oil has tracked crude and is now posted at $468 per metric ton for December settlement, $35/t higher than last week.

Europe

Most API Group I grades are showing length throughout Europe, with only solvent neutral 150 causing slight concerns for availability through December. Considering that producers typically try to reduce inventories at years end, some downward pricing pressure is possible in coming weeks.

Group II products appear balanced within Europe, and producer-importers may try to raise source prices to cover rising raw material costs. Group IIIs are now clearly over-supplied, and with a plethora of availabilities comes price pressure on a large scale. A parcel of around 30,000 tons of gas-to-liquids Group III material is due into Europe during December, joined by new production from Al Ruwais, United Arab Emirates, and incumbent Bahraini imports. The scene may be set for an economic bloodbath.

Group I prices within Europe are a mixed bag, with SN150 moving upwards due to constraints on Russian exports and now sit – along with SN100 – at $510/t-$530/t. On the other hand, SN500 and SN600 prices dipped by $10/t-$15/t to $555/t-$570/t.

Bright stock, which was forecast to become tight, is also available from a number of suppliers in large quantities, perhaps because of the curtailed exports into West Africa. Prices are slightly weaker at $790/t-$820/t. Some observers still expect bright stock supplies from European producers to tighten, which could cause upward pressure on prices for this grade.

The prices above refer to large parcels of Group I oils supplied or offered on an FOB basis ex-mainland European supply points.

Domestic Group I sales have been the subject of random price adjustments, with some sellers looking to move material out of storage prior to years end. Offers for spot sales of varying volumes have been heard around the market, with some blenders claiming to have been pitched the equivalent of export prices – which are normally lower – to move material out of tank immediately. Strangely, these prices are being applied to both light and heavy neutrals. The range of the differential between local and export prices fell at the low end and is currently assessed between 25/t and 85/t.

Group II prices appear stable, and some sources suggest the current differential with Group I oils needs to be maintained for Group II traffic to continue. This is largely refuted by Group II sellers, who insist that they will continue pricing on cost-plus basis.

CIF prices for mainstream Group II oils carrying full approvals are unchanged this week, with light grades at $555/t-$585/t and 500N and 600N at $725/t-$785/t. Ex-tank prices remain around $25/t higher, or 20. It should be emphasized that these prices could come under pressure should crude and feedstock costs rise or continue at current levels.

Its seems only a question of time before Group III prices fall. Some sellers reportedly cited the crude spike as justification for standing pat, arguing that they may impose markups after Jan. 1 in order to recoup costs. This rhetoric is hard to fathom given the glaring oversupply moving into Europe from Qatar, Malaysia, Bahrain and Abu Dhabi.

So far there are no reports of discounting, but with shipments entering an already crowded European marketplace, buyers will have ever increasing choice for Group III base stocks. A complete collapse may seem unlikely, but continuing erosion appears unavoidable.

Prices for 4 centiStoke and 6 cSt grades remain at $680/t (615/t), FCA Northwestern Europe. Fully approved oils FCA Antwerp-Rotterdam-Amsterdam is between 705/t-735/t for the 4 centiStoke and 6 cSt grades, while 8 cSt material is 670/t. CIF prices for cargoes of Group III base oil are $50/t-$75/t lower.

Baltic and Black Seas

Prices for base oils out of Baltic and Black sea ports are relatively stable. A couple traders have initiated enquiries for large cargoes to load during December for Nigeria. This may be a case of trying to exploit year-end discounts or getting ahead of markups that may be coming in 2017. A number of smaller movements were reported from Baltic ports down to Antwerp-Rotterdam-Amsterdam, with one rather unusual parcel moving from Liepaja, Latvia, to discharge in Turkey. This 4,000-ton cargo seems to have been fixed on a Turkish flag vessel that may have offered special freight rates to return to native waters.

SN150 is reportedly still short from a couple of refineries although supplies are available from one major producer who has been responsible for a number of the short sea cargoes to Northwestern Europe. One large parcel of 12,000 tons is being arranged at the moment for Nigeria. Another 4,000-ton parcel – possibly ofSN900 – is being discussed for the West Coast of India.

FOB/FCA prices for Russian export barrels of SN150, SN500 and SN900 are $495/t-$520/t, $525/t-$545/t, and $595/t-$620/t, respectively. Sellers have hinted that prices may rise should refinery gate values climb, but this will possibly not be felt until after years end.

Cargoes nominated from Greece and the Baltic reportedly arrived into Turkey, but no movements are recorded crossing the Black. Russian export SN500 is reassessed from the dubious level heard last week – $465/t, delivered CIF Gebze, Turkey – to a confirmed level of $525/t. Thats still an attractive value for this grade, although suspicions are that it may be sourced from Uzbekistan.

Prices for available Group I grades are maintained, with one buyer saying Greek suppliers were willing to show flexibility on cargoes shipped during December but warned that increases loomed if feedstock costs rise. SN150 is pinned at $515/t-$535/t and SN500/600 remains at $585/t-$615/t. Bright stock is confirmed in one partial cargo at $863/t, CIF.

A possible cargo of Group III grades has been mooted for receivers in Bulgaria, loading out of Al Ruwais and two-port discharging into the Black Sea port of Varna and Le Havre, France. This may be the foundation for satellite storage to help the European distributor access Eastern Europe.

Middle East

Red Sea activity is mostly confined to routine trade loading out of the Saudi Arabian ports of Yanbu and Jeddah for contract supplies and spot deals to India, the Middle East Gulf and the Far East.

The Middle East Gulf appears to be a hive of year-end activity for base oil exports and imports. In addition, contract supplies are being laid out. Iranian exports of Group I SN500 are the mainstay of the lower Gulf, with two cargoes being worked for the West Coast of India and Pakistan. One parcel, possibly as large as 10,000 tons, is loading out of the two main Iranian ports of Bandar-e Emam Khomeyni (BIK) and Bandar Bushehr. Iranian FOB levels for higher spec SN500 are around $600/t, FOB Bandar Bushehr and BIK. FOB prices for smaller volumes of SN150 and SN650 are $565/t-$525/t, respectfully. Re-exported Iranian SN500 ex-U.A.E. is t $610/t and can be obtained in offers around $615 FCA, or $625 FOB.

These parcels form the rump of Group I outward-bound cargoes, whilst parcels from Saudi Arabia, the U.S., Northwestern Europe, Thailand and Brazil are being contemplated by receivers throughout the Middle East Gulf. Sources said FOB U.S. cargoes appear to be extremely well priced, and even with sea freight costs relatively high, producers and resellers are keen to clear inventory this month. The beauty of these transactions is that cargoes will be on the high seas during the latter days of December, thus not counting against seller or buyer inventories.

Incoming Group I cargoes are estimated to be around $585/t CIF in respect of SN500/600, with bright stock forming part of some cargoes at around $825/t CIF. European- and Red Sea-sourced material is expected to be delivered at around $565/t in respect of SN150; $635/t for SN500; and $875/t for bright stock.

Group III exports are planned from Al Ruwais and Sitra, Bahrain, to Europe, India and Far East, in addition to material for U.S. markets. FOB levels in respect of 4 centiStoke and 6 cSt grades are estimated to be below $600, although no FOB pricing information has been released directly from any parties in Middle East Gulf. These prices can only be extricated by netting back prices which are confirmed at landed destinations. Mentioned earlier in this report was a large parcel of some 30,000 tons of Group III grades being exported from Qatar for European discharge in Germany. This exemplifies the large quantities of Group III material emanating from this region, perhaps making it the largest source of Group III production.

A number of Group II price sources were not available for comment this week, leaving price evaluation at $505/t-$525/t for the range of light vis grades 100N through 220N. Cuts such as 500N and 600N remain at $660/t-$675/t CIF Middle East Gulf.

Africa

There would appear to be a mini surge in cross-Mediterranean trade this week, with reports of cargoes moving into Mohammedia, Morocco, Rades, Tunisia, and Alexandria, Egypt, with some of the cargoes filling two-port discharge to accommodate larger parcels, keeping freight costs to a minimum.

South African importers related that a couple of cargoes were expected from northwestern Europe during December, but that these parcels had yet to be loaded. It is thought that since these were trader quantities, the parties involved may have been waiting for December to afford lower FOB levels. Now it is thought that one cargo of around 10,000 tons may be loaded, although a larger vessel may prove difficult to discharge due to draft and LOA (length overall) restrictions.

In Nigeria there are reportedly still serious problems with banking and the access to foreign currencies. However, as indicated by one intra-affiliate cargo from northwestern Europe and a further Baltic cargo of some 12,000 tons being negotiated, there are obviously ways to continue trade into Nigeria.

Group I offers from the U.S. seem to have been withdrawn in favor of allocating these cargoes elsewhere, such as to the Middle East Gulf and the west coast of India, for examples. It is not known yet if any cargoes from U.S. will eventually find their way into Nigeria.

Prices are all over the place with various offered levels attached to open credit being quoted at some $100/t-$150/t over what could be considered true market levels. There are prices for bulk supplies and prices for flexies, all of which have varied terms and conditions attached.

Other more routine trade into West Africa is the continuance of the Ghana tender contract with supplies of around 5,000 tons of composite Group I grades delivered into Tema. Another possibility involves Cameroon receivers looking at a small cargo of 3,000 tons for December loading. It is possible that this material could be for cross-border trade into Nigeria using Cameroon ports as import locations.

For Nigeria, notional bulk prices remain at around $595/t in respect of small quantities of SN150 in bulk. SN500 is contained in offers at $685/t-$720/t, but these are subject to guaranteed payment arrangements being in place. U.S. and European bright stock is offered at $925/t-$965/t, but again, carefully subject to strict terms and conditions. Russian exports of SN150, SN500 and SN900 in bulk will be offered at around $630/t, $695/t and $840/t, respectively, whilst delivered material in flexies is offered at $785/t, $795/t, and $935/t, CIF Apapa. These prices obviously relate to smaller quantities of Baltic material.

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