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APPEC interview: Iraq Aims to Boost Crude Exports, Market Share in Asia

Iraq exports around 2.4 million b/d of crude oil to China, India and South Korea

Iraq is willing to raise its export volumes to Asia in the coming years as the Persian Gulf producer aims to sharply expand its market share in the East, shifting its focus further and further away from outlets in the West, a senior Iraqi government official said in an interview with S&P Global Platts on Tuesday.


  • Iraq aims to supply 80% of total crude exports to Asia by 2020
  • Iraq to comply with OPEC production cut, slash exports to Europe, US
  • Basrah crude demand in Asia strong but changing quality a concern

Asia is the most important revenue stream for Iraq and it's important to concentrate the producer's crude marketing in the Far East as the region is expected to remain the world's major energy consuming hub for years to come, said Dheyaa Jaafar Hajam al-Musawi, minister councilor for energy affairs at the Iraqi oil ministry.

The OPEC's second-largest producer aims to supply as much as 80% of its total crude exports to Asia by 2020, a significant hike from the current ratio of around 52%-55%, he told Platts on the sidelines of the APPEC conference in Singapore.

"Iraq is strongly focused on Asia because growth is in Asia ... Iraq exports around 2.4 million b/d of crude oil to China, India and South Korea ... they are the main Iraqi customers," Musawi said.

The comments come as a stark contrast to the recent string of export cuts to Asia by other major Middle Eastern producers with Abu Dhabi National Oil Co. recently cutting its allocations for November-loading crude oil by up to 15% for the majority of its customers.

Prior to that, various Asian end-users saw their crude oil term allocations from Saudi Arabia slashed for September, with at least two South Korean refining companies receiving around 10% cuts in monthly contract volumes for light and medium sour grades.

State-run Chinese refiners and major Japanese end-users saw their September Saudi crude term allocations cut by 5% or more, also falling victim to Saudi Aramco's surprise decision last month to limit its supply to Asia.

The cuts form part of Saudi Arabia and the UAE's commitment under OPEC's November 30, 2016, deal to reduce production by 486,000 b/d and 139,000 b/d, respectively, from October levels last year.

When asked about the viability of the Iraq's ambition to increase its Asian market share amid ongoing pressure from fellow OPEC members to bring the country's production in line with its commitment under the deal, Musawi said that Iraq is prepared to slash export volumes to Europe and the US. "Iraq is absolutely fully committed to the OPEC agreement ... [crude] sales to non-Asian regions like the US and Europe will be sacrificed," he said.


ASIAN DEMAND FOR BASRAH LIGHT


Iraq's flagship Basrah Light remains one of Asia's favorite grades in the Middle Eastern medium-heavy sour crude complex, and Iraq will promote bigger sales of the grade to help expand the producer's market share in Asia, Musawi said.

"Basrah is selling well. Asian demand remains strong," he said.

The spreads between monthly official selling prices for Basrah Light and its rival Saudi Arab Medium crude so far this year have shown that Iraq's crude sales arm, State Oil Marketing Organization, has been adopting a bullish stance for the Iraqi grade, signaling the marketer's confidence in Asian demand this year.

Throughout most of 2016 and until late first quarter this year, the monthly OSPs for Basrah Light have consistently been set at a discount to Saudi Arab Medium crude.

However, the trend has reversed from late first quarter this year when the OSP for Basrah Light crude loading in March and bound for Asia was set at a discount of 50 cents/b to Platts Oman/Dubai assessments, 5 cents/b higher than the March Arab Medium Asia OSP of Platts Oman/Dubai minus 55 cents/b.

Most recently, Basrah Light's OSP premium over Arab Medium widened to 30 cents/b.

SOMO has raised the OSP for Basrah Light crude loading in October and bound for Asia by 40 cents/b from September to a discount of 25 cents/b to Platts Oman/Dubai, while Saudi Aramco raised its OSP differential for Arab Medium for loading in October by 35 cents/b from September to a discount of 55 cents/b.

However, Musawi noted that the quality of Basrah Light has been deteriorating, with falling API gravity of the medium-heavy grade raising slight concerns that some Asian end-users may reduce the crude intake.

"Most of the fields are fully matured, so the crude is slowly becoming heavier," he said.

--Gawoon Philip Vahn, philip.vahn@spglobal.com
--Edited by Arnab Banerjee, arnab.banerjee@spglobal.com

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