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Northeast Asian Refineries Pursue Iraqi Crude Amidst Increased Refinery Run Rates

Selling prices for Basrah crudes have dropped to significant discounts compared to other Persian Gulf grades, attracting Northeast Asian end-users to buy more Iraqi barrels.

Official selling prices for Basrah crudes have dropped to significant discounts against other Persian Gulf grades, prompting Northeast Asian end-users to buy more Iraqi barrels to meet increased refinery run rates and winter fuel requirements.

Iraq's State Oil Marketing Organization, or SOMO, reduced official selling price differentials across its Asia-bound Basrah oil grades by 40-50 cents per barrel in November. The changes came on top of a $1.20-$1.50/b cut in OSPs announced in August and September.

As a result, prominent Northeast Asian refiners have reported that OSP gaps between Iraqi crude and other Persian Gulf grades have narrowed significantly, making Iraq's flagship Basrah Light and Basrah Heavy crudes particularly appealing.

According to S&P Global Platts statistics, the OSP gap between Basrah Light and Saudi Arabia's Arab Light fell to minus 85 cents/b for cargo loading in November, a significant decrease since the Iraqi medium sour grade commanded a premium of 15 cents/b to Saudi oil for cargoes loaded in March.

Trading and operating sources at two major South Korean refiners told Platts that South Korean refiners are especially eager to take advantage of the competitive prices to replenish their depleted crude stockpiles and serve their rapidly expanding refinery run rates.

Over the next few quarters, South Korea's overall crude imports are expected to recover to pre-pandemic levels as major refiners such as Hyundai Oilbank, SK Innovation, GS Caltex, and S-Oil Corp. increase run rates to boost transportation fuel production, with the government aiming to transition to a phase of living with COVID-19 starting Nov. 9.

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