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Iraq is increasingly edging out resellers of its Basra crude grades on the spot market as its state oil marketing company SOMO aims to have greater share and control over the lucrative spot market for its crude, S&P Global Platts reports, citing oil traders.
SOMO has started to warn its term crude cargo buyers against becoming spot sellers of destination-restricted cargoes on the secondary market. This move is not unusual for Middle Eastern oil producers—most of Middle Eastern oil producing nations don’t allow the resale of oil cargoes under term contracts, Platts notes.
The strategy of Iraq’s state oil marketing company had already led to a slowdown in spot trading activity in the European market earlier this month. In early November, demand for sour crude grades in Europe was higher due to the low appetite for Iranian crudes just ahead of the U.S. sanctions on Iran amid no clarity on possible U.S. waivers for Tehran’s oil customers. Trading sources told Platts at the time that SOMO had sent letters to companies in which it reminded them that their term contracts with Iraq don’t allow resale of cargoes on the spot market.
Spot trades in Iraqi crude continued to drop throughout November, leaving scarce liquidity in the December trading cycle, because the reminder that buyers aren’t allowed to resell cargoes removes the buying incentive and flexibility for resale for Basra oil buyers, according to traders who spoke to Platts.
Due to SOMO cracking down on resale of term barrels, Asian refiners in South Korea and Japan will struggle to find Iraqi crude cargoes with destination for Asia on the spot market, a Singapore-based trader with a Chinese company told Platts.
Meanwhile, Iraq is also looking to grab a higher market share in Asia, allocating 67 percent of its 2019 oil sales to the world’s fastest-growing oil demand region, and aiming to boost its oil supply to China by 60 percent next year.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.