Page 6 - DMEA Week 48 2020

DMEA COMMENTARY DMEA

SOMO extends pre-payment

deadline as buyers scramble

Iraq’s state oil marketer has pushed back its crude pre-pay deadline as it seeks to generate

short-term revenues, but it is unlikely to fill the massive deficit facing Baghdad.

IRAQ BAGHDAD last week amended the deadline to $2bn, though there has been speculation that
for bids for its crude pre-payment scheme, with there may only be one ‘winning bidder’.
WHAT: the original date having given traders just four An official from Iraq’s Ministry of Oil (MoO)
The deadline for bids for days to turn around paperwork and banking was quoted by Reuters as saying: “We decided
the pre-payment deal requirements. to extend the deadline to give more space for
has been moved until The bidding window was expanded by a week customers to study our offer and make sure they
December 4. and will now close on December 4, according fully understand contract terms.”
to sources spoken to by Middle East Oil & Gas
WHY: (MEOG). Cash grab
Traders had been given The scheme was announced by the State Oil SOMO is understood to have been considering
little time to prepare bids, Marketing Organization (SOMO) on November implementing an oil sales pre-payment solution
and documents issued 23, though in addition to the tight turnaround for some time. However, given the lack of warn-
by SOMO lacked some time, the letter, seen by MEOG, included only ing and short deadline, the move bears the hall-
clarity. ‘general terms’ and brief clarification of the marks of a knee-jerk reaction to fill Baghdad’s
pre-payment with “all other terms and condi- $3-4bn monthly operating deficit.
WHAT NEXT: tions […] subject for SOMO’s standard GT&Cs”, Speaking to MEOG, one source said: “SOMO
Successful bidders will leaving some traders seeking clarification. has made several key moves here. The pre-pay-
be expected to pay for In the letter, SOMO’s director-general, Alaa ment announcement, the addition of the Basrah
48mn barrels of crude al-Yassiri, proposed that buyers should pay for a Medium crude grade and the revision of dis-
within 30 days, though year’s supply in advance to guarantee crude sup- counts on the heavier crude grades suggest that it
this is likely provide little plies for a five-year period covering January 2021 may be under increased pressure to bolster state
more than a quick fix for until December 2025. The pre-payment would coffers.” As MEOG reported last week, Baghdad
Iraqi finances. cover the “total quantity to be lifted from July 1, is hoping to achieve a sales volume of around
2021 till June 30, 2022”, with the buyer required 1mn barrels per day (bpd) with the Medium
to pay SOMO for 48mn barrels “within 30 days grade.
of countersigning the contract”. SOMO also issued a notice to operators and
On price SOMO said: “The amount has to buyers informing them of official selling prices
reflect a provisional price for said quantity which for its three grades, Basrah Light, Medium and
shall be based upon the monthly or yearly aver- Heavy.
age price of “Brent Dated” (whichever is higher) Buyers of Basrah Light and Basrah Medium
[…] as published by Platts.” Signature of a sin- will be compensated by $0.4 per barrel for each
gle contract on these terms would bring in up degree below the grades’ associated agreed

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