Iraq heard cutting Dec equity crude allocations; full volumes for refiners

Iraq's State Oil Marketing Organization or SOMO was heard to have sharply cut December volumes of oil allocated to international oil companies operating as technical service contractors in the country, in order to fulfill commitments to term lifters, several sources told S&P Global Platts.

"Catch up plan for the obligation to fulfill term, equity holders can wait," a trader with a Southeast Asian refinery said.

SOMO did not respond to a request for comments.

Some refiners in India and China confirmed receiving full volumes for December in line with their term contracts. One Indian buyer also confirmed getting incremental crude from the Iraqi producer.

"This month SOMO has most of the production volumes [but] seems not [much] equity volumes. So mostly allocated to term lifters," a trader with a North Asian refinery said.

With contractors receiving fewer cargoes, spot availability of Basrah grades in December is thin, pushing buyers to seek other Middle East grades instead, traders said.

"As people all get [what] they wanted with term [at] OSP flat, then who [is] going [to] pay more than that?," the trader with the North Asian refinery said referring to capped spot buying for Basrah grades this month.

Basrah crude grades load one month ahead compared with other Middle East crudes loading two months ahead.

Market participants were left wondering about the reason behind the move while attributing the fulfillment of term supplies to an increase in production by OPEC+ members and a hike in OSPs.

For December-loading crude, SOMO hiked prices by 40 cents/b-$1.50 cents/b across its Asia-bound grades though far lesser than other regional producers such as Saudi Aramco who upped prices by $1.10/b-$2.80/b, Platts data showed.

The move to limit supplies to contractors could tighten spot market momentum as the trade for January-loading barrels flags off, sources said.

Demand for crude in Asia continues to grow amid increased refinery runs and gradual recovery from the coronavirus pandemic across the continent, sources said.

"That is bullish for spot," a crude oil trader in Singapore said referring to the limited availability of Basrah crude to spot buyers this month.

In October, SOMO was heard to have sold, via tender, a two million barrel December-loading Basrah Light cargo to Petraco.

The cargo was heard sold by Petraco at a premium of around 50 cents/b to the grade's official selling price to unknown buyers. The trade could be the only Basrah crude cargo sold on the spot market this month, some sources said.

At Asia close on Nov. 17, Platts assessed December-loading Basrah Light crude at a premium of 50 cents/b to the grades OSP while Basrah Medium and Basrah Heavy were assessed at a premium of 50 cents/b and 65 cents/b to the respective grades OSP, data showed.