Page 6 - MEOG Week 47
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MEOG                                   PIPELINES & TRANSPORT                                           MEOG


       Iraq sees oil pre-payment as




       solution to cash flow crisis






        IRAQ             IRAQ’S  State  Oil  Marketing  Organization  figure of 416,000 bpd, a drop of 21,000 bpd from
                         (SOMO) this week proposed to its crude oil cli-  September.
                         ents a pre-payment option as Baghdad seeks to   The Federal Iraqi figure shows that rather
                         use future oil sales to plug a major budget deficit.  than the deeper cuts pledged by Baghdad
                           In documents leaked to Iraq Oil Report,  between September and December, produc-
                         SOMO’s director general Alaa al-Yassiri pro-  tion expanded by 242,000 bpd from Septem-
                         posed that buyers should pay for a year’s supply  ber and remains around 38,000 bpd above its
                         in advance to guarantee crude supplies for a five-  August-December quota.
                         year period. The outlet reported that Baghdad   Meanwhile, the country’s exports also
                         is seeking to raise $1.7bn through the initiative.  increased during the month, by more than
                           Meanwhile, Bloomberg quoted the confiden-  200,000 bpd compared to the previous month.
                         tial letter, saying: “SOMO, on behalf of the Min-  Total Iraqi oil exports stood at 2.968mn bpd for
                         istry of Oil [MoO], has the interest to propose  October with revenues totalling $3.43bn, based
                         a long-term crude-supply deal in exchange for  on an average price of $38.48 per barrel.
                         prepayment for a fraction of the total allocated   Baghdad is reported to be among several
                         quantity,” noting that by its calculations, the  OPEC member countries opposed to extending
                         move would bring in around $2bn per customer.  the current 7.7mn bpd reductions of the OPEC+
                         The proposal stipulates supply of 4mn barrels per  group, though Oil Minister Ihsan Abdul Jabbar
                         month, around 130,000 barrels per day (bpd).  has denied this and said that Iraq would back any
                           The Iraqi authorities are thought to be oper-  decision made by its partners.
                         ating at a monthly deficit of $3-4bn.  The original agreement would see produc-
                           Last week SOMO sources were quoted by  tion cuts being relaxed by 2mn bpd from Janu-
                         S&P Global Platts as saying that it expects to  ary, a move that would serve to exacerbate Iraq’s
                         achieve a sales volume of 1mn bpd of the new  already strained finances.
                         Basrah Medium crude grade, which will be   With this in mind, Deputy Prime Minister
                         launched in January 2021.            Ali Allawi told a virtual conference this week: “I
                           The sources added that the company has  think … we have reached the limit of our ability
                         not yet concluded 2021 term contracts, as work  and willingness to accept [an OPEC] policy of
                         remains ongoing to determine official selling  ‘one size fits all’. We are beginning to articulate
                         prices which are likely to be sold at a discount to  that position.” He added: “We should not accept
                         Basrah Light, though given the grade’s similari-  the ‘one size fits all’ model that is being pursued
                         ties to Saudi Arabia’s Arab Heavy, it may achieve  now. I do not particularly think that it is correct
                         a similar price.                     to apply this, especially over a long period of
                           This week, SOMO announced the revision of  time, [to] the OPEC cutbacks, without taking
                         its compensatory pricing mechanism for fluc-  into account the economic, social and demo-
                         tuations in crude density. In a statement quoted  graphic and political conditions.”
                         by Reuters on November 23, the company said   While Iraq is not expected to depart from
                         it would compensate Basrah Light and Bas-  the cartel, such statements undermine previous
                         rah Medium buyers by $0.4 per barrel for each  announcements that Baghdad would do ‘what-
                         degree below the grades’ associated agreed API  ever’ was agreed by the group as a whole.™
                         gravity. Meanwhile, lifters of Basrah Heavy are
                         to receive a discount of $0.6 per barrel for every
                         degree the consignment falls below the agreed
                         API.
                           Following the introduction of Basrah
                         Medium, the new grade will have an API gravity
                         of 29 degrees, with Basrah Light coming in at 33
                         degrees and Basrah Heavy 24 at degrees.
                           The Light grade crude accounted for around
                         2.18mn bpd of Iraq’s exports during the first nine
                         months of 2020, according to Argus tracking
                         data, while the Heavy grade averaged just shy of
                         800,000 bpd.
                           In early November, SOMO said that Kurd-
                         istan was responsible for 446,000 bpd of Iraq’s
                         total 3.482mn bpd average daily October
                         crude production. Erbil meanwhile quoted a



       P6                                       www. NEWSBASE .com                      Week 47   25•November•2020
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