Page 4 - MEOG Week 26 2021

MEOG COMMENTARY MEOG

Baghdad cancels

Zhenhua’s crude

prepayment deal

Iraq has cancelled a prepayment deal with a Chinese firm and sold the crude to other
customers as oil markets remain much stronger than when the contract was announced.

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

P4 www. NEWSBASE .com Week 26 30•June•2021