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Iraq awards $2 bil oil deal to Chinese buyer without destination restrictions: SOMO

Highlights

5-year contract includes one-year prepayment starting July 1, 2021

Supply is for 4 million barrels per month of Basrah crude

This is the federal government's first such contract

Dubai — Iraq's $2 billion oil supply contract with partial prepayment terms has been awarded to a Chinese buyer without destination restrictions, the director general of the country's State Oil Marketing Organization told state-owned Iraqi News Agency Jan. 2.

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The Baghdad federal government had planned to sell a five-year oil supply contract -- with one-year prepayment -- for the first time, sources told S&P Global Platts in December, as the cash-strapped state seeks to fill its coffers.

The supply was for 4 million barrels per month of Basrah crude, starting July 1, 2021, the sources added. A Chinese company has won the contract, Alaa al-Yasiri, SOMO director general told INA Jan. 2, without naming the company.

"Several offers were submitted by companies and there was fierce competition between two companies, a European and a Chinese and the Chinese company won," Yasiri said.

Platts reported Dec. 9 that China's Zhenhua -- the trading arm of Norinco -- had won a deal to take up to 16 million barrels of Basrah crude.

Officials at Zhenhua were unreachable for comment over the weekend.

"The Cabinet has approved this mechanism, but has yet to officially instruct us to proceed with implementation," Yasiri said.

The offered contract, which will bring Iraq $2 billion with zero interest and a premium on the price, offered flexibility to buyers, he added.

This flexibility includes the freedom to determine the cargo loading day, export destination and the possibility to resell cargoes, he said.

Quota busting

Iraq is struggling to pay for basic goods and services amid a severe financial crisis that prompted the government to devalue the dinar by more than 20% in December. The pandemic, low oil prices and political instability have weighed on the OPEC member, which failed for most of 2020 to stick to its quota.

Iraq's federal oil exports -- excluding those from the semi-autonomous Kurdistan region -- averaged 2.846 million b/d in December, according to the oil ministry's preliminary data released on Jan. 1. December exports were 5% higher than November's 2.709 million b/d average, according to ministry data, signaling that the country may have pumped above its 3.804 million b/d quota.

Iraq had pledged to make up for May-August overproduction by implementing so-called 600,000 b/d in "compensation cuts" between September and December. However, it failed to implement the additional cuts.

The so called OPEC+ alliance decided in a Dec. 3 meeting to taper its oil production cuts and raise collective output by 500,000 b/d starting Jan. 1, instead of the original 1.9 million b/d hike slated for this month due to anemic global oil demand.

Under the new January quota, Iraq is allowed to pump 3.857 million b/d.

OPEC+ ministers are set to meet Jan. 4 amid plans to adjust production levels monthly, so as not to overwhelm the still-recovering market with new supplies, ministers have said.