Iraq’s SOMO says demand for new Basrah Medium grade at least double current supply

Dubai — Iraq's State Oil Marketing Organization is seeing "huge" demand for its new Basrah Medium crude grade -- at least double the current available supply of 1.1 million b/d -- but OPEC+ curbs may limit exports, the marketer's deputy director general told S&P Global Platts.

SOMO introduced the Basrah Medium grade in January after splitting its Basrah Light, the country's biggest crude stream, in two to preserve the stability of exports and meet customer demands, Ali al-Shatari said in a Feb. 15 interview.

"I would say the availability [of Basrah Medium] is around 1.1 million b/d but, of course, the export every single month is varying down and up, depending on where we are cutting in order to meet our obligations under the OPEC+ agreement and depending on nominations coming from our customers, based on contractual figures," he said.

Iraq, OPEC's second largest producer, is subject to oil production quotas as part of the OPEC+ agreement. Iraq produced 3.807 million b/d of crude in January, including from the semiautonomous Kurdistan region, SOMO said Feb. 3, below its OPEC+ quota of 3.857 million b/d, which is effective through March. In the Feb. 3 statement, SOMO said its January overcompliance means it has 576,000 b/d of "compensation cuts" remaining to make up for overproduction in 2020.

March demand

SOMO, which only markets oil produced from federal Iraq, expects federal oil exports to average around 2.9 million b/d in February, with 2.8 million b/d exported from the southern oil terminals that handle Basrah crudes, Shatari said.

SOMO exported 891,000 b/d of the new Basrah Medium crude grade in January, comprising 32% of total Basrah crudes' exports. Basrah Light exports reached 1.097 million b/d, representing 40% of total exports, while Basrah Heavy stood at 782,000 b/d, or 28% of the total.

"Maybe in March you will see something else because the demand for the medium grade is getting higher," Shatari said. "The demand for Basrah Medium, we sense it from the allocations basically, not necessarily from the monthly allocations but even for the annual allocations. The annual requirements that came from our customers for Basrah Medium is even much higher than what we got for Basrah Light and Basrah Heavy. I would say it is much higher than even the availability of that crude. It could reach double or triple."

January exports

Basrah Medium has already attracted a broad global customer base since its first export in January, according to trading sources and ship tracking data.

China has been the largest consumer of the grade so far, accounting for almost half of total Basrah Medium exports.

India has been the second largest buyer, with the bulk of it going to the country's private refiners located on the west coast.

Other key destinations so far have been the US, Greece, Turkey and Italy.

SOMO first notified its customers in November 2020 that it was introducing a new grade to split Basrah Light into two crudes as new fields with heavier oil created quality fluctuations in recent years.

Basrah Medium has a specific gravity of around 27.9 API with a sulfur content of 3%. This makes it very similar in quality to Saudi Arabia's Arab Heavy, which has a gravity of 27.8 API and 2.75% sulfur.

Crudes such as Iranian Heavy, Brazil's Mero, Russia's Urals and Oman crude export blend are also similar. Basrah Light and Basrah Heavy were initially marketed by SOMO with gravities of 34 API and 26 API, respectively. Heavy crudes normally have a specific gravity lower than 25 API, while medium grades are within 25-34 API.

Gas dilemma

In 2015, Iraq segregated the Basrah crude stream into Basrah Light and Basrah Heavy to improve and stabilize the quality of the crude oil it exports.

Basrah Light availability is around 1.1 million b/d while Basrah Heavy is between 900,000 b/d and 950,000 b/d, Shatari said.

"Whenever there is a good demand for Basrah Light, previously we couldn't really capture it because our Basrah Light was under the medium specifications range but now we have our Basrah Light which can compete with other light grades supplied from this region or even in other markets," said Shatari.

Besides OPEC+ oil production restrictions, the Basrah Medium and Basrah Light output is limited by Iraq's needs for associated gas, a big chunk of which comes from heavy oil producing fields.

"Basically nearly 70% to 80% of our oilfields are producing gas, it's associated gas. So this [is] another thing we have to take into consideration before cutting from the fields," Shatari said. "Even if it's a heavy oil producing field, if it has gas for electricity generation and other purposes within Iraq then we will have to take that into consideration before cutting. So the priority is based on a full economic and feasibility study."