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Iraq - Part 3 - Exports & The Global Perspective.

The federal budget for 2017 is based on projections of a crude oil market price of $42/b and exports of 3.75m b/d, including 550,000 b/d to be sent from Kurdistan. The deficit is forecast at 21.7 trillion dinars ($19bn), with expenditure of ID100.7 trillion ($98bn), some 6% below projected 2016 spending.

Iraq in April exported 3.252m b/d of crude, down from 3.259m b/d in March, generating $4.6bn. The Ministry of Oil (MoO) said the average April price was $47.275/b. For the first time, it auctioned 2m barrels on spot basis via a ULCC on the Dubai Mercantile Exchange (DME), at a premium of $0.31 to the official selling price (OSP) for June.

The MoO-owned State Oil Marketing Organisation (SOMO) in April signed a contract with the Egyptian General Petroleum Corp (EGPC) 12m b/year to Egypt. The first cargo, 2m barrel was to be shipped in May. This was part of Iraq's market share effort by gaining a competitive edge amid intense competition after a crude oil price fall and OPEC/NOPEC output cuts. SOMO thus gained at the expense of Saudi Aramco which had just resumed exports to Egypt after a suspension in 2016.

Iraq, OPEC's second-biggest oil producer, agreed to shave off 210,000 b/d from its crude oil output to help improve prices. But the OPEC cut was offset by rising US shale oil production. That erased all price gains since the OPEC/NOPEC groups in late 2016 reached deal to cut supplies by 1.8m b/d.

SOMO prices Iraq's two export crude oils: Basra Light, 34? API, with 2% sulphur; and Kirkuk, 36? API with 2% S. It sets the monthly OSP on the basis of a differential to Dated Brent for Europe-bound shipments and to the average prices of Oman and Dubai crudes for shipments to Asian/Pacific markets. For US-bound shipments, SOMO on April 1. 2010 began to price the sales at differentials to the Argus Sour Crude Index (ASCI) benchmark.

Previously, US-bound sales of Kirkuk and Basra Light had been set at differentials to Platts WTI. Petroleum Argus on Feb. 12, 2010 quoted SOMO Director-General Falah al-Amiri as saying: "We will use it for April pricing".

The ASCI benchmark price, begun in May 2009, had already been adopted by Saudi Arabia and Kuwait as the basis for term crude sales to the US. Iraq's switch from WTI meant that its Gulf crude oil exports to the US were set at differentials to the ASCI price. But Iraqi sales to the US have fallen to a negligible volume in the past four years.

SOMO's sales are done on term basis, with a spot sale exceptionally done last month. Term buyers of Basra Light include Total, Repsol, Cepsa, BP, Shell, Chevron, Marathon, Vitol, Tesoro, Valero and ENI. Asian term buyers are three state-owned Indian firms - Indian Oil Corp (IOC), Hindustan Petroleum and Bharat Petroleum, and the private Reliance Industries Ltd (RIL); China's state-owned Sinochem, Unipec and PetroChina; Mitsubishi of Japan, South Korean companies, and Taiwan's CPC. SOMO bans re-sale of Iraqi crudes, a practice followed by the NOCs of other Middle East states. The term buyer must have the refinery destination of the Iraqi crude mentioned in the contract.

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Comment:Iraq - Part 3 - Exports & The Global Perspective.
Publication:APS Review Oil Market Trends
Geographic Code:7IRAQ
Date:May 15, 2017
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