Iraqi Basrah Light crude differentials flip to premium after 4 weeks in discount as supply eases

New York — Spot market differentials for Iraqi Basrah Light crude have rebounded to a premium after four weeks in discount amid a reduction in supply for the current trading cycle, trade sources said Aug. 18-19.

The Basrah Light (M1) spread to the grade's official selling price was assessed at a premium of 5 cents/b at the Asian close Aug. 18 after being consistently in discount since July 22, S&P Global Platts data showed.

Prior to July 22, the spread had remained at a premium for three months, the data showed.

"Iraq had a shorter program for September as they cut an additional 400,000 b/d to comply [with the OPEC+ cut agreement], so maybe this supported the differentials," a source from a Chinese refiner said.

September-loading Basrah light cargoes were heard to have traded at small premiums in the range of single digits to 30 cents/b to the grade's OSP in recent days, according to Basrah trading sources. Cargoes in the August-loading cycle were traded at steep discounts.

"We saw Basrah traded in single digit to 20 cent premiums [to the OSP]... spot Basrah trading positions seem short this cycle and they [Iraq] could have cut supply to lifters," a Basrah trader based in Northeast Asia said.

Iraq's State Oil Marketing Organization lowered its OSPs for Asia-bound crudes for September loading by 40-60 cents/b Aug. 11. The September OSP for Basrah Light was cut by 60 cents/b to a premium of $1.50/b to the Oman/Dubai average and for Basrah Heavy was cut 40 cents/b to a discount of 25 cents/b to Oman/Dubai.

Iraq's oil output in July, including flows from the semi-autonomous Kurdish region, remained steady from June. The country has missed targets to comply with OPEC+ cuts and has pledged catch-up cuts of 400,000 b/d in August and September, Platts reported earlier.

The OPEC+ Joint Ministerial Monitoring Committee is due to meet later Aug. 19, possibly offering further clarity on the status of compensation cuts from members that overproduced in earlier months.