Page 12 - AsianOil Week 26 2021

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Iraq cancels Zhenhua’s

crude prepayment deal

Baghdad has cancelled a prepayment deal with China’s Zhenhua Oil and sold the crude to
other customers as oil markets remain much stronger than when the contract was announced

COMMENTARY WITH crude prices remaining buoyant, the excess of crude, a number of customers would
Iraqi Ministry of Oil (MoO) has cancelled a need to take it and to increase their contractual
$4bn prepayment crude supply deal agreed with quantities based on it,” he said.
WHAT: China’s Zhenhua Oil Co. in December. Progress In December, Zhenhua was awarded a
SOMO’s 48mn-barrel per on the contract stalled in February as Baghdad five-year term crude supply tender from
year deal with Zhenhua benefited from rising oil prices, and an official Iraq’s state oil marketer SOMO under an
is off as Iraq’s realised from state oil marketer SOMO said this week arrangement that included a $2bn pre-pay-
crude price jumps by that the crude allocated for the prepayment had ment for the first year’s crude volume. The
nearly a quarter over six now been sold to other customers. agreement guaranteed Zhenhua the supply
months. The move is unsurprising given the dra- of 48mn barrels per year of crude from Jan-
matic increase in crude prices. Zhenhua’s pre- uary 2021 to December 2025.
WHY: payment deal assumed a price of $41.67 per The contract had been pending approval by
The deal would have seen barrel, while the price achieved by SOMO has the Iraq Cabinet and Finance Ministry, following
Iraq guarantee crude increased by more than 23% since January, which Zhenhua was to be given 30 days to pay
sales to the Chinese firm reaching $65.82 in May. the $2bn pre-payment for loadings between July
at a price of $41.67 per 1, 2021 and June 30, 2022.
barrel compared with the Inapplicable In February, the country’s oil minister, Ihsan
price achieved in May of Speaking to S&P Global Platts, SOMO’s deputy Abdul Jabbar, announced that the deal had been
$65.82. director-general Ali al-Shatari said: “For the time frozen. Speaking to BBC News Arabia at the
being we may say it is not applicable at this stage time, he said: “There was a fear that oil prices will
WHAT NEXT: because of oil prices, which are high, and we are not rise above $40 per barrel and we were afraid
Despite the move, in a better position and we are even generating of the delay in the [fiscal] budget approval. We
relations remain strong additional profits in excess of what the Iraqi had a number of incentives to do this announce-
and Iraq is seeking to budget needs.” ment for the first time in Iraq.”
continue building bridges He added that the crude had already been However, he added: “with the start of this year
with Chinese customers. “allocated”. and the economic stability resulting from the sta-
“We have demand for our crude more than bility in the oil price, we decided to freeze this
the availability of crude, so at any time we have attempt, to freeze this option.”

P12 www. NEWSBASE .com Week 26 01•July•2021