Asian markets yet to rule out supply disruption for Iraqi Basrah crude

Singapore — Singapore-based Middle East crude oil traders said they were not ruling out the possibility of Iraqi Basrah crude supply being impacted as a result of political or logistical hurdles, following escalating tension in the Middle East between the US and Iran.

"Geopolitics is back in action, but [in terms of supply impact] I haven't heard anything yet," said a trader with an Asian firm that holds production equity in Basrah crude in Iraq.

Crude traders who spoke to S&P Global Platts on Monday said they were trying to inquire about any potential changes for January and/or February loadings from Iraq.

A trader with a South Asia-based refiner said he had "no idea as of now," on the impact to Basrah crude production, but was "trying to find out."

"People are cautious. [There is] no word on [Iraqi] allocations yet," said another refiner that runs Basrah Light crude among other medium sour grades in its Southeast Asian refinery.

Iraq's State Organization for Marketing of Oil, or SOMO, is expected to issue monthly volumes allocated to its customers in the coming days. The allocations are for February-loading cargoes, and will be issued hand in hand with the February loading program for Basrah crude.

The February schedule is likely to provide more clarity around January cargoes as well, for which loading is currently underway, some traders said.

The political situation could see further escalation, and it was too early to rule out whether further military or retaliatory action could affect Iraqi production sites, said the traders.

SAUDI CRUDE AS ALTERNATIVE?

Sources at Saudi Aramco said they had not received any additional requests for replacement volumes from their customers in Asia as of Monday, as the situation was still developing.

"February allocations are not out yet, but we do not expect [Saudi Aramco's customers] to ask for more volumes so far," said a source familiar with the matter.

A market source with a Southeast Asian refiner confirmed that they had yet to receive February cargo allocations for their term contract with Saudi Aramco, and had yet to hear of other customers having received theirs from either Aramco or SOMO.

Meanwhile, the Asia crude market continued to price-in heightened risk for the Middle East at large, due to potential fallout from the current events that could curtail movement of oil in and out of the region, crude brokers said.

Time spreads further along the Dubai curve rose, as did prices for global crude benchmarks, including ICE Brent and Dubai futures.

Crude brokers in Singapore said the Brent/Dubai Exchange Futures for Swaps spread could rise further if Brent spreads continued to rally on the situation, but so far Dubai had kept up pace.

The Middle East's two key shipping waterways -- the Bab-el-Mandeb Strait at the southern tip of the Red Sea and the Strait of Hormuz -- are likely to bear the brunt in the event of further military escalation due to their strategic importance as passages for nearly a quarter of the world's daily oil flow.

In 2018, the daily oil flow through the Strait of Hormuz averaged 21 million b/d, or the equivalent of about 21% of global petroleum liquids consumption, according to the Energy Information Administration.

Approximately 6.2 million b/d of crude oil, condensate, and refined petroleum products flowed through the Bab-el-Mandeb Strait toward Europe, the US, and Asia the same year.

-- Eesha Muneeb, eesha.muneeb@spglobal.com

-- Edited by Agamoni Ghosh, newsdesk@spglobal.com