Crude had a turbulent week, with Dated Brent falling below $100 per barrel in early week trading. In the crude scene, long positions outnumber short positions, suggesting that the market will rise again and Dated Brent will average $105 per barrel for the rest of the year.

However, the faltering Chinese economy in which buyers are not purchasing as much crude as expected does not support this. The consequence is that ICE gas oil is showing strength, with front month numbers around $865 per metric ton, whilst Dated Brent is now around $101.50.

These external prices continue to affect base oils, since incremental quantities of gas oil derivatives such as diesel can be produced more easily and inexpensively than base oils can. Refiners are considering base oils-which are languishing at current levels-increasingly unacceptable every day.

European Group I prices remain unaltered, with light solvent neutrals at $945-$975/t, and heavier mid vis grades at $990-$1020/t. Bright stock has remained relatively static at $1095-$1120/t. All prices refer to FOB offers and sales ex mainstream supplies within Europe and North Africa, where available. Enquiries are often not being covered in full, with more than one seller offering reduced quantities, particularly for some of the heavier grades. One complete 7,500 ton cargo has been identified from Mediterranean suppliers en route to Apapa, Nigeria.

Due to supply constraints from refineries, a few suppliers within Europe are unable to offer additional spot business, suggesting that the local or domestic markets are shortening. Its not clear whether these are temporary blips in the production chain or signs that the Group I market may be entering a phase of decline. This would be good news for Group II and Group III players, but if there is not enough substitute material available to take up the strain, the transition may be too fast.

Many European Union countries are experiencing the economic woes of single currency domain, causing reduced demand for base oil and finished lubricants. With decreased demand comes decreasing production, and so on.

Within Europe, the gap between export values and local selling levels is 90-110/t, reflecting the various extra costs of domestic business.

Baltic & Black Seas
Baltic trade is reportedly thin, with only one cargo of 8,000 tons from Svetly, Russia, to Sharjah, United Arab Emirates, but the economics of the movement remain private and confidential. FOB prices have not varied much over the past seven days with SN 150 offered at $930-$940/t and SN 500 around $960-$970/t. Reports over the last two weeks suggest slightly lower final selling prices than the high ends of the ranges.

SN 900 is in relatively short supply, and priced at 1020-$1035/t basis FOB Baltic ports.

Black Sea reports indicate that Turkish buyers are returning to look for SN 100, SN 150 and in some cases, SN 500. One enquiry for 3,000 tons of SN 150 went unfulfilled, since distributors didnt have sufficient stocks in tank. When Turkish civil problems erupted, distributors halted all movements from supplying refineries and were left with only stocks in tank, which have been since depleted. One Russian cargo of 3,000 tons has been booked from Theodosia, Ukraine, to Gebze, Turkey, this being one of the first trans-Black Sea movements for some time.

Russian SN 150 and SN 500 prices are $955-$965/t basis CIF Turkish ports, although prices may be slightly lower when Uzbek material becomes available, which will be at least three weeks, during which prices can alter.

Middle East
Egypt continues to import base oils, with one smaller cargo ex Northwest Europe programmed for the first half of July. A Mediterranean supplier is putting together a 9,000 slug of mixed Group I grades for supply to Jordan through Aqaba in the second part of July. This supply is normally effected from Yanbu or Jeddah, and with this vessel also being programmed for Jeddah discharge, Saudi Arabian suppliers may be experiencing shortfalls after turnarounds.

In the Middle East Gulf, a 6,500 ton parcel of Iranian base oils is reportedly being shipped from Bushehr, Iran, to Hamriyah, U.A.E. This is the largest cargo out of Iran for some time, spurring interest in how its shipping will be performed. Prices are still reported at $965-$980/t for SN 500 coming out of Iranian ports. Its anticipated that both SN 150-at $5-$10/t higher, and SN 650, some $20/t lower-will be included.

These prices are aggressively low, perhaps to encourage Iranian material out of the region. It is difficult to see how material being shipped from the Baltic to the U.A.E. will be able to compete with freight estimates of $100-$120/t.

Other Middle East Gulf activity includes a 4,000 ton parcel of Group III coming out of Bahrain and bound for Mumbai anchorage.

Africa
East African buyers are still contemplating offers for U.A.E. and Baltic material delivered in flexies into ports such as Mombasa, Kenya. Durban is maintaining SN 500 imports from U.A.E. with South African receivers expecting a number of containers this week. Prices are $1175-$1190/t for SN 500, the main imported grade.

West African receivers have been registering a number of cargoes from Northwest Europe, Baltic and the Mediterranean. Landed prices are in the ballpark of those as estimated previously in this report: $1030-$1085/t for the range of Group I solvent neutrals, and $1155-1175/t for bright stock delivered, all basis CFR Lagos. SN 900 was heard but not confirmed to be around $1075/t landed.

As noted last week, levels now will be $20-$30/t higher for future cargoes arriving into this region due to recent movements in the FOB levels within Europe and the Baltic.

Group II/III
Group II distributors within Europe are gearing up for a supply boost when a major U.S. supplier begins exporting later this year. Coinciding with the demise of some Group I capacity, this comes at the perfect time.

Largely unchanged over the past weeks, prices are remaining competitive against Group I, which is the main objective at this stage. There are rumors of major suppliers within Europe cutting back on Group I production of some light neutral grades, where the natural transfer to Group II light vis material could take place. Prices are maintained at 1105-$1165/t for light vis 150N and 220N, and $1225-$1295/t for the higher vis 500N and 600N, all basis ex tank, either Northwest Europe or Mediterranean storage terminals.

Middle East Gulf Group II business is brisk, and even after price rises from producers in the Far East, orders for July and August are at an all-time-high with some suppliers commenting that they may not be able to offer top-up spot avails during this time due to production constraints. With tight supply due to maintenance and repairs at a number of Far East plants, prices might start to increase, although Middle East Gulf receivers are resisting.

Levels remain at $1065-$1090/t in respect of the light vis grades, with 500N and 600N being delivered now at $1165-$1185/t, whilst new monthly price offers for July and August are almost all showing increases of some $10-$20/t.

European Group III players are encouraged by the news that moves to Group II and III may be on the horizon thanks to possibly restricted Group I supplies. However, prices are still being hammered due to the over-supply situation which shows little signs of relenting, with more and more production hitting the European markets. Not being too pessimistic about the situation, prices appear to have remained at last weeks levels, with July 1 the next time to reevaluate. Levels remain at 905-920/t for 4 cSt and 6 cSt.

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