Deliveries of Iraqi Basrah crude to Europe and the Mediterranean could drop next year after state-owned marketer Somo trimmed allocations for some of its term customers.
Somo communicated term volumes for 2021 yesterday, with four European and Mediterranean refiners reporting year-on-year cuts of 5,000-20,000 b/d each. A fifth Somo customer said its allocation was broadly unchanged from 2020.
A total of 2.94mn b/d of Basrah Light and Basrah Heavy loaded in January-November, 16pc of which was shipped to Europe and the Mediterranean, according to Vortexa data. These volumes are mainly Somo term supplies, but they also include cargoes that Somo sells on the spot market along with supplies received by foreign oil companies in exchange for their investment in Iraq's upstream sector.
Starting next year, Somo's term customers will be able to nominate one of three Basrah grades following the upcoming reclassification of the stream into Basrah Light, Basrah Medium and Basrah Heavy in January. The existing Basrah Light and Basrah Heavy grades will be marketed until the end of this year. A revised quality compensation scheme to reimburse buyers in the event that the new Basrah grades fall short of their on-paper API specifications was announced last week. Equity producers will be able to opt for the new Basrah Light and Medium grades, according to an Iraqi source. The two grades are already in demand in Asian tenders.
The trimmed allocations for term buyers in Europe and the Mediterranean come as Iraq faces pressure to comply with its Opec+ output quota and compensate for previous overproduction with additional cuts. Some market participants linked the reduced allocations with a rare five-year supply tender issued by Somo last month, which includes a prepaid one-year period during which supplies are resellable — an option not usually open to regular term clients. The tender, which closes on 4 December offers 48mn bl a year. Some traders speculate that a Chinese buyer or one of the majors is likely to win the tender, given the difficulties that other companies might face in securing the relevant bank financing in such a short space of time — particularly for the prepaid portion of the contract, which would oblige the winner to pay upwards of $1.9bn within 30 days of signing the agreement.
The lion's share of Basrah exports already go to Asia-Pacific. Mideast Gulf producers have been trying to increase their foothold in the Asian market — and particularly China — in recent years as the region's refining capacity grows. The Covid-19 pandemic has nevertheless highlighted an advantage in producers diversifying their customer base.
This article is reproduced at www.argusmedia.com
