The weak spot in that last theory is that Group II prices are falling, and if the spread between Group I and II narrows too much, it may encourage some formulators to switch from the former to the latter.

Crude oil traded in a narrow range the past week. Hurricane Harvey forced the closing of a number of refineries along the United States Gulf Coast, and this has already helped swell crude inventories. Dated deliveries of Brent crude traded at $51.95 per barrel in London late Tuesday, while West Texas Intermediate was at $46.40/bbl, both for October settlement. The $5 spread between the benchmarks was unusually wide and reflected exceptionally flush stocks in the U.S.

ICE LS Gas Oil posts at around $489 per metric ton this week, some $17 higher than last reported, due perhaps to firm demand within Europe.

Europe

While values elsewhere trended down the past week, API Group I prices within Europe were unchanged thanks to positive demand. There is already talk of European oils being shipped to U.S. locations to fill shortages caused Hurricane Harvey.

Light solvent neutrals remain between $680/t and $695/t, and SN500 and SN600 are still $765/t-$785/t. Bright stock shows small signs of strengthening, perhaps because of new interest from West Africa and other export markets. European mainstream bright stock is now pitched between $795/t-$845/t. These prices refer to large cargo-sized parcels of Group I base oils supplied or offered on an FOB basis ex-mainland European supply points.

Trade within Europe is returning to normal this week and next, and only after that period will any new prices be announced. Buyers are hanging their hats on developments in Group II and III markets, both of which are seeing markdowns – by more than $50/t for some heavy-viscosity grades. The hurricane may generate some pressure for U.S. Group II producers, who export to Europe, to rescind a recent round of price cuts.

The differential between domestic ex-tank or FCA prices and export levels is still assessed at 65/t-95/t.

The Group II segment is alive with talk of those markdowns in source markets of imported oils – cuts that general range from $10/t-$20/t for light-viscosity grades to $45/t-$60/t for heavies. The cuts may stem from a seasonal decrease in demand.

Group II suppliers are very focused on maintaining market share since a large slug of new supply will hit the market when Luberef completes an upgrade at its plant in Yanbual Bahr, Saudi Arabia. That would suggest a likeliness for those price cuts in other markets to make their way to Europe, but the hurricane has created uncertainty.

Prices for local ex-tank or FCA sales are flat this week, but prices for large cargoes arriving into European hubs during September are adjusted downward. Light-vis oils are now assessed between $640/t-$665/t with 500 neutral and 600N at $775/t-$815/t, CIF Antwerp-Rotterdam-Amsterdam. FCA prices from European supply hubs remain at 755/t-790/t for light neutrals and 855/t-890/t for heavies.

Both Group II and Group III segments have been affected by the euros decline in value against the dollar, which has effectively discounted sales conducted in euros.

Sources described European Group III trade as stable to weak, and some reported discounts being linked to contracted volumes. A full contingent of buyers and sellers should be back at their desks next week, and this could bring news about September prices as well as a direction for the rest of this year. With mounting rumor and reports of the market going long again, buyers are keen to establish the best deals available to them.

Prices for 4 centiStoke and 6 cSt grades are down this week to $785/t-$810/t or 680/t-705/t for sales conducted in euros on an FCA basis for northwestern Europe. Group II oils with full slates of finished lubricant approvals, sold on an FCA basis from Antwerp-Rotterdam-Amsterdam, are now assessed between 780/t-815/t for 4 cSt and 6 cSt grades and 755/t-775/t for 8 cSt. Cargoes delivered in bulk to large customers may carry a $60/t-$75/t discount.

Baltic and Black Seas

Baltic reports confirm the completion of the two cargoes identified last week – one of around 7,000 tons, the other 15,000 tons, both loading out of Riga, Latvia, for discharge into Lagos. More cargoes are under discussion for Nigeria – one of 5,000 tons of two grades of Russian exports, the other of 10,000 tons due to load during the first half of September. There are also reports of intra-Baltic trade from southern ports into receivers in Riga. This is possibly transferring or bridging quantities of bright stock in smaller parcels which will then avoid a larger vessel en route to West Africa having to two-port load, thus avoiding calling costs.

Baltic to Antwerp-Rotterdam-Amsterdam and the United Kingndom east coast movements for smaller cargoes are also on the horizon for September load and discharge.

Prices in the Baltic are reportedly stable to firm, with sellers trying to boost them – perhaps by $10/t-$20/t – wherever possible. This has not always been achievable as buyers are issuing counteroffers that appear to have been accepted in some cases.

Prices are maintained this week with FOB levels for SN150 at $665/t-$685/t, SN500 at $740/t-$765/t, SN900 at $835/t-$860/t, and bright stock at $905/t-$945/t.

Shipping reports from the Black Sea describe a parcel from Batumi moving into Gebze, Turkey, that may be comprised of Uzbek or other non-Russian base oils being attractively priced to enter the Turkish market. Typical shipments of Russian SN500 and SN150 are also reported loading out of Azov, Russia, and coming into Marmara, Turkey, ports. There is no further word of any large Kavkaz, Russia, parcels loading for Antwerp-Rotterdam-Amsterdam or for United Arab Emirates and Singapore, although traders indicate that a large cargo is being assembled in the region for loading during first half September.

Russian offers for SN500 have been confirmed at $783/t CIF, not some $20/t-$25/t lower, as some Turkish receivers would have the market believe. Mediterranean-sourced Group I cargoes from Greek and Italian suppliers are rumored at $695/t-$710/t for SN150 and $790/t-$815/t for SN500/600, CIF Turkish ports. Sources suggested bright stock from Italian or Spanish sources is around $855/t-$875/t, CIF Turkish ports.

Middle East Gulf

There were few reports of any consequence from Red Sea sources the past week, but other parts of the Middle East Gulf, especially the U.A.E., saw a raft of cargoes coming and going.

Iranian Group I cargoes of 4,000 to 5,000 tons are still being assembled for export from Bandar Abbas and Bandar Bushehr, but these may be stand-by stocks since Sepahan Oil, Irans main supplier of SN500 and premium SN500, will be undergoing a five-week turnaround. Local sources said Sepahan may have enough stocks in tank to cover sales during the turnaround period, although large cargoes are not expected to be available until later in October. U.A.E. and Indian buyers have suggested prices around $635/t on an FOB equivalent basis. It would appear that quantities of SN150 are available at $595/t, although U.A.E. sources had no knowledge of any SN150 being available from Iran.

Buyers in Sharjah, U.A.E., are looking to take a parcel of some 3,000 tons of Group III from Sitra, Bahrain. Group III cargoes have already sailed for Europe and the U.S. from Al Ruwais, U.A.E., although fewer movements are being reported from this source to the India and Far East. Receivers in India said prices are once again negotiable and that distributors based in this market are under pressure to meet buyers demands.

Group III FOB values are re-assessed this week to take cognizance of the swelling availability of the grade. Four and 6 cSt oils loading out of Al Ruwais are now reckoned at $645/t-$675/t, while 4 and 6 cSt oils from Sitra are assessed at $715/t and 8 cSt at $685/t-$700/t. Oils that Neste is selling from Sitra have a full slate of finished lubricant approvals. European and U.A.E. said Adnoc should have the same for its Al Ruwais oils within a few months.

The FOB prices above are netback estimates based on nominal freight, general handling and marketing costs. CIF prices are sourced from contacts in the various regions and pertain to large cargoes sold to large buyers and distributors, so FOB prices are for bulk cargo sales and do not relate to regional or to local ex-tank or FCA sales.

Numerous offers of Group II grades have been made to receivers in Middle East Gulf regions. U.S. offers are circulating within the U.A.E., and one receiver said it does not require fully approved material since it is making transformer oils and white oils for export markets.

Local availability of Group II from Far East and U.S. sources via a European hub is offered out of U.A.E. storage on an FCA or delivered basis. Prices dropped the past week to $810/t-$825/t for light grades and $825/t-$870/t for 500N/600N, CIF Middle East Gulf locations.

Africa

A Group I cargo of 12,000 to 13,000 tons is reported loading out of in Antwerp-Rotterdam-Amsterdam bound for East Africa and Pakistan. Part of the volume will be discharged into bulk storage in Mombasa, Kenya, which is interesting since most base stocks shipped to that region are smaller quantities contained in flexi-tanks. The cargo in question may be an intra-company sale by an oil major.

South African receivers are assessing offers for Group I to be shipped to Durban in flexies.

Italian sources have supplied two cargoes of Group I into Algeria and Morocco. Receivers in Egypt and Libya have made inquiries, and Spanish and Greek sellers may be in position to cover them.

West Africa continues to be the largest market for Group I exports, with another 40,000 tons of material reported loading this week. Cargoes of 7,000 tons and 15,000 tons have loaded out of Riga for discharge into Apapa port at Lagos, and 16,000 tons is loading out of a U.S. Gulf Coast port. Two cargoes will probably load out of the Baltic during the first half of September, and a 4,000 to 5,000 ton Mediterranean cargo is due into Tema, Ghana in late September. Additional quantities may be loaded to the Ghana parcel to accommodate receivers in Guinea and Ivory Coast.

More than one U.S. Group II producer has offered quantities for export to Nigeria. These offers are still valid, and with prices perhaps loosening, sources in Lagos have expressed keen interest. With storage at a premium in Apapa, other ports may be investigated, such as Port Harcourt. Group III imports are also being evaluated with a view to major blenders using them to produce premium automotive lubricants domestically.

Group I imports prices are maintained this week in light of the cargoes loaded and notified this week. It is understood that new offers are also showing prices in line with last reported levels. CIF/CFR values for Group I material for prompt loading are assessed at $770/t-$785/t for SN150 parcels of at least 1,000 tons and $858/t-$875/t for SN500/600 delivered into Apapa, the upper price referring to SN600 offers from U.S. sources. Russian SN900 is $940/t-$960/t and various grades of bright stock at $1005/t-$1045/t.

All prices for Nigeria are for Group I base oils delivered CIF/CFR to Apapa, Lagos or Port Harcourt.

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