Iraqi Basrah crude trading for June cycle off to firm start in Asia

June loading cargoes of Iraq's Basrah crude began trading in the spot market this week, fetching strong premiums from end-users on the back of firm demand from China, as well as shorter availability of alternative heavy sour crude barrels, traders told S&P Global Platts on Wednesday.

Even with spot cargoes fetching premiums over the official selling price, the final prices for these cargoes still work out to a net discount against the underlying benchmarks, according to Platts data.

At least three million barrels of Basrah Light from the June loading program had already been sold from various equity holders to end-users, with at least two of the three cargoes destined for Asia, they said.

A 1 million-barrel clip of the grade allocated for Asia was first reported sold by an oil major to an unnamed buyer at a premium of around $2/b over the June Basrah OSP.

A second, destination unrestricted cargo, was heard purchased by an end-user at a premium of around $2.80/b over the OSP.

Finally, a third 1 million-barrel clip of June loading Basrah was heard sold by a European trader to a buyer in China at a premium of around $3/b over the OSP.

Shorter supply of alternative medium and heavy sour grades in Europe, and availability of storage in China are some of the reasons why the Basrah cargoes fetched premiums amid a period of muted global crude demand due to several reasons, traders in the industry pointed out.

"Generally in the global pool, heavier crude is in shorter supply due to a smaller Urals loading program in Europe and long standing constraints in terms of Venezuelan and Iranian oil that is off the market," said a Singapore-based crude trader.

Combined May loadings of Urals crude are scheduled to be 865,890 b/d lower than April at 1.25 million b/d, the lowest for the medium-sour grade in at least eight years, according to the provisional program seen by Platts at the end of April.

"Additionally, now you have OPEC cuts, and those tend to impact medium to heavier sour crude barrels," he added.

These trades, known as 'preprogram sales' were carried out ahead of the issuance of the June loading program, which is expected to be released in the coming days alongside confirmation of monthly volumes for term customers of SOMO.

The trades likely occurred a couple of days before Iraq's SOMO issued its OSPs for June, in which SOMO hiked its prices in step with Saudi Aramco and other Middle East producers.

SOMO raised the OSP for its Basrah Light and Basrah Heavy grades, scheduled to load in June and head to Asia, by $2/b and $2.10/b, respectively, from May.

Basrah Light cargoes heading East in June will be priced at a discount of $4.55/b to the mean of Platts Oman/Dubai assessments in that month, while parcels of Basrah Heavy will be $6.20/b below the benchmark.