Dubai — Iraq, the top oil supplier to India, is not cutting volumes to the South Asian country in February amid a focus to maintain its market share in Asia, which consumes at least 70% of its crude exports, the deputy director general of Iraq's State Oil Marketing Organization told S&P Global Platts.
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"We haven't cut [in January and February]," Ali al-Shatari said in a recent interview. "Actually, the Indian market is a very important market for us and our customers there are really relying on Iraqi crude oil heavily, so we are not going to cut from them unless we are forced to."
OPEC's second largest producer had a 25% market share of India's crude imports in 2020, with shipments rising 9.4% to 50.17 million mt, shipping data showed. Due to sanctions, Iraqi crude has in the past few years unseated Iranian crude exports to India, which fell to zero in 2020 for the first time. Saudi Arabia was the second largest crude supplier, but its shipments declined by 11% in 2020.
"The Asia market [has] the priority in our allocation -- it is a market that every single producer is targeting and we are doing the same," Shatari said. "It is a market where the competitiveness is very high, we are not going to [carry out] actions that may let us lose our market share or the footprint in our market or the trust of our customers in that market. As for the European market and the Americas, the market share we have there is much less than what we have in the Far East."
India, China and South Korea are Asia's top three importers of Iraqi crude.
Iraq was China's No. 3 oil supplier in 2020, exporting 60.12 million mt of crude last year, with an 11.1% market share in the world's second largest oil consumer.
China's No. 3 supplier
SOMO has added new customers in China and India, Shatari said, without disclosing the names of the companies. More than 60% of Iraq's Asian exports go to India and China, he added.
China's 38 independent refiners are processing more Iraqi crude, with Basrah Light volumes to those refiners rising 25% year on year in January to 800,000 mt. Basrah Light took the No. 9 spot in terms of the top crude grades processed by the independent refiners in January.
"We are basically targeting whenever there is a new market opening in those countries, mainly China and India, like independent refineries for example are one of our big customers, while we were dealing only with state companies before," Shatari said.
SOMO also has profit sharing agreements with China's state-owned Zhenhua Oil Co., a unit of Norinco, and trader Sinochem, whereby the Iraqi marketer takes a percentage on every cargo resold by the two Chinese companies. Usually SOMO's contracts with customers are for oil sold directly to their refineries, but these profit sharing agreements allow companies such as Zhenhua and Sinochem to sell the Iraqi crude to other customers, mainly in the Far East. Zhenhua and Sinochem couldn't be reached for comment.
"We also employ these profit sharing agreements because those companies are Chinese companies and they are close to that market, so they are also doing their best to let the new refineries taste our crude and present it to them in a very good condition," he said.
To bolster its presence in Asia, SOMO is considering building storage for Iraqi crude in either India, China or South Korea, Shatari said.
"We may enter into negotiations with some owners or even customers who will have access to storage tanks, mainly in Asia, which is the market we are targeting," he said. "Of course all of that is in order to make things easier for our customers to access our crude in all conditions, even in severe conditions that may happen in the Gulf area."
Bad weather in the Persian Gulf can affect southern oil exports, which are expected to reach around 2.8 million b/d in February, out of federal Iraq's 2.9 million b/d forecast, which excludes volumes from the semi-autonomous Kurdistan region.
Iraq is also working internally to help serve its customers, including those in Europe and the Americas.
SOMO, which has more than 55 customers now, is testing a new program to sell spot cargoes of crude and oil products directly to companies, instead of invitations via email. In the past, SOMO sold spot oil cargoes on the Dubai Mercantile Exchange, but it now plans to sell the oil directly with the new system. The timeline for the system's start-up is not yet set because it is still in the testing phase.
"We have technicians working on building a kind of internet-based program that should be reliable, and it is under testing now in order to have those spot cargo options in a very transparent way [and] in a very active way to all participants," Shatari said.