Singapore — Official selling price differential for Iraq's flagship Basrah Light crude for loading in September and bound for Asia has flipped to a discount against its rival Saudi Arab Medium grade for the first time in five months, signaling Baghdad's ambition to gain more market share in Asia over the coming quarters.
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With the end of 2018 expiry of the OPEC-led output cut agreement approaching fast, major Middle Eastern producers have started to make some moves to revive their marketing and sales activities in Asia.
Kuwait recently introduced its new Extra Light grade to South Korean and Japanese refiners, while Abu Dhabi National Oil Company has told its Asian customers that it will no longer cut its term crude contractual volumes and allow up to an additional 5% above its term volumes, starting from cargoes loading this month.
Iraq's State Oil Marketing Organization was also signaling its intention to expand its share of Asian energy demand pie, with the state-run oil marketer announcing earlier this month that the country's crude production hit its highest in 13 months in July of 4.46 million b/d.
Iraq has consistently reported total production of 4.36 million b/d since September last year and OPEC's second-largest producer also said it exported 3.875 million b/d in July, inching up 25,000 b/d from June to hit its highest since January 2017.
Rising Iraqi supply was immediately followed up by attractive price tags, making a case for Asian end-users to consider exploring cheaper Basrah grades as the main procurement items in their monthly Persian Gulf sour crude shopping basket.
The OSP differential of Iraq's flagship Basrah Light crude recently turned lower than the level of Arab Medium for the first time in five months.
Earlier this month, SOMO has lowered the OSP differential of its Basrah Light crude grade loading in September and bound for Asia by 50 cents/b from August to a discount of 15 cents/b to the Platts Oman and Dubai average.
This put the Basrah Light OSP differential for September at 10 cents/b lower than the Arab Medium OSP differential for the same month. The spread was last lower for April-loading cargoes when the Iraqi grade was priced at a discount of 20 cents/b to the Saudi crude.
South Korean refiners especially have found Iraqi barrels highly competitive against other Persian Gulf supplies so far this year, making a case for the companies to ramp up imports of Basrah Light and Heavy grades in recent quarters.
South Korea has imported 13.9 million barrels of crude from Iraq in June and paid on average $70.97/b, latest data from state-run Korea National Oil Corp. showed. KNOC's import cost figures include freight, insurance, tax and other administrative and port charges.
On the contrary, Asia's fourth-biggest energy consumer imported 6.7 million barrels from the UAE in June at an average cost of $77.87/b, 32.3 million barrels from Saudi Arabia at an average cost of $75.46/b and 12.1 million barrels from Kuwait at $72.56/b.
During the second quarter, South Korea imported a total of 36.2 million barrels from Iraq, up 17% from 30.9 million received in Q1.
India's fondness for Basrah crude also remained strong, with recent spot market activities hinting at steady Iraq-India trade flows in Q4.
Mangalore Refinery and Petrochemicals Limited was recently out seeking sour crude oil for October loading through two tenders, one for each of the first two decades of the month.
Asian trade sources said the Indian company could have purchased up to 1 million barrels of October-loading Basrah Light crude in the first tender. Price levels could not be verified but trade sources said it would have had to be relatively low in order to compete with medium sour US crude barrels being offered in the region.
Iraq overtook Saudi Arabia as the biggest crude oil supplier to India in the 2017-2018 fiscal year ended in March. The world's third-largest crude importer has purchased 45.74 million mt from Iraq during April-March of the last fiscal year, the latest provisional government data showed.
In the 2016-2017 fiscal year, Saudi Arabia had occupied the top crude supplier list with 39.34 million mt, followed by Iraq's 37.76 million mt and Iran's 27.14 million mt.
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