Less than a month before OPEC is slated to begin the promised cuts, Iraq is increasing its crude oil sales to China, India and the U.S. under new or expanded deals, requiring it to cut deliveries to other customers if it earnestly intends to stick to its pledge to cut oil output by 210,000 bpd.
Iraq’s state-owned oil marketing company SOMO has increased its Basra crude forward export sales to the country’s biggest customer - Chinese Unipec - by 3 percent to 435,000-652,000 bpd for 2017, Reuters reported on Friday, citing people and traders familiar with the matter. Unipec, the trading unit of Sinopec, plans to load every quarter 2 million barrels of Iraq’s Basra Heavy crude.
“If Iraq increases its sales to China while others have to cut back or just hold their volumes steady, Iraq will inevitably gain market share in what is arguably the most important oil market,” a trader specializing in crude sales to China said, as quoted by Reuters.
Iraq is currently China’s third-largest supplier of crude oil behind Russia and Saudi Arabia. Iraq’s sales to China increased by 15 percent annually to around 723,000 bpd between January and October this year.
According to a loading schedule for the Basra Heavy crude and a person in the know, Iraq’s state company SOMO will also sell the export grade under new deals with U.S. giants ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX), as well as to India’s refiner Essar Oil. All these contracts have bumped up Basra oil exports to 3.53 million bpd for January 2017, the highest level since June this year.
According to an oil-loading schedule dated December 8 and viewed by The Wall Street Journal, Basra crude’s exports at 3.53 million barrels per day in January would be a 7-percent increase from October volumes, which raises the question, is Iraq already showing signs of going rogue? Because instead of cutting crude exports—a logical byproduct of lowered production— it is increasing them.
Although Iraq agreed to cut output by 210,000 bpd from a reference production level of 4.561 million bpd, it was one of the last holdouts that was threatening to sink the OPEC deal with balking over secondary sources estimates and pleading for an exemption over the war it is fighting against Islamic State.
By Tsvetana Paraskova for Oilprice.com
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