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Saudi Arabia looking to buy Iraqi crude in wake of recent attacks: sources

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Saudi Arabia looking to buy Iraqi crude in wake of recent attacks: sources

Highlights

Aramco contacted SOMO for Basrah Light barrels

SOMO yet to comply with request

Saudi focusing on diverting more barrels for export

Singapore — The world's largest crude exporter, Saudi Arabia has approached Iraq's State Oil Marketing Organization to buy Iraqi crude as it looks to fill a supply shortfall in the wake of the recent oil attacks, sources told S&P Global Platts Wednesday.

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Sources said state oil company, Saudi Aramco, was looking to process crudes such as Basrah Light at its own refineries to compensate for the recent drop in its oil output due to the attacks on the Abqaiq plant and Khurais oil field.

Saudi Arabia has been using its vast crude inventories to offset some of the lost production and meet its customers' demand since the attacks temporarily took some 5.7 million b/d offline on Saturday.

A source said Iraqi's state oil marketing company, SOMO, had not yet agreed to "comply" with this request as they have to meet their obligations with their term holders.

Sources also said Aramco are looking to divert some of the crude earmarked for its domestic refining system for export instead to meet its October and November crude nominations.

Aramco had approached SOMO for around 10 million barrels of Basrah Light crude for October or November loadings, a source added.

A representative at SOMO declined to comment while a spokesperson at Saudi Aramco was unavailable for comment.

On Tuesday, Saudi energy minister Prince Abdulaziz bin Salman said the kingdom hopes to restore most of the crude production affected by the attacks within two weeks,

The kingdom had already dipped into its strategic oil stocks to meet domestic and export demand, the prince added.

Saudi Arabia's crude stocks were 179.8 million barrels in July, according to official data released Wednesday, enough to cover 28 days of exports which averaged 6.88 million b/d during that month.

Abqaiq is currently processing some 2 million b/d of crude, down from 4.9 million b/d before the attacks, Aramco CEO Amin Nasser said Tuesday. Repairs to Abqaiq are expected to be completed by the end of the month, he said.

The Saudi grades most affected by the attacks are Arab Light and Arab Extra Light, both of which are very popular in Asia and Europe. Production of Arab Light and Arab Extra Light averaged 5.50 million b/d and 1.53 million b/d in 2018 respectively, according to Platts estimates.

Trading sources said Saudi Aramco had already notified some of its customers that due to this outage, they will be supplying buyers of these crudes with Arab Medium or Arab Heavy as substitute grades.

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SIMILAR QUALITY

Iraq's Basrah Light is very similar in quality to Saudi Arabia's Arab Heavy, a key feedstock for Saudi refineries.

Arab Heavy is classified as a medium sour crude with a specific gravity of 27.80 API and a sulfur content of 2.75% while Basrah is of also medium sour quality with 28.80 API and 3.16% sulfur.

"If true this is big news and it could happen as Aramco would rather run its refineries with Basrah crude than buy products directly off the market, they have been getting high offers for products," said a crude trader active in Middle East markets.

SOMO sells almost all of its crude on a term basis but it has occasionally sold some cargoes on the spot market. In the past few months, SOMO has been focusing on growing its trading business and selling more oil on the spot market.

Over the past two years, SOMO has sold about 100,000-200,000 b/d of its crude on the spot market, out of the around 3.50 million b/d it exports.

The bulk of this has been sold through channels such as the Dubai Mercantile Exchange and the Platts Market on Close assessment process.

-- Eklavya Gupte, eklavya.gupte@spglobal.com

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

-- Faleh Al-Khayat, newsdesk@spglobal.com

-- Edited by Jonathan Dart, jonathan.dart@spglobal.com