Page 6 - MEOG Week 47
P. 6
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