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Iraq has relaxed its crude oil exporting rules in a bid to pocket better prices for its most precious commodity despite the continuing rally. Baghdad now allows buyers to withhold the destination of the cargo when they buy it until two weeks after the issuance of the cargo’s bill of lading.
Not having to set a destination for the cargo at the time of buying provides oil traders with greater flexibility in reselling it, Bloomberg notes, depending on a price comparison and possible shortages that would produce better prices for the cargo.
Iraq has already sold two cargoes under the laxer rule, for a total of 4 million barrels. The cargoes sold at a premium to the official selling price at an auction in Dubai. An earlier lot that sold on the spot market under the old, more stringent rules, fetched a lower price that the official selling figure, Bloomberg noted.
Energy Aspects analyst Nevyn Nah told Bloomberg that “Sellers are seeking higher prices by removing contractual restrictions at a time of heightened competition Buyers are happy to pay a premium for cargo optionalities, which in this case lets them lock in its destination later, allowing them to swing shipments east or west and take advantage of arbitrage opportunities.”
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OPEC’s number-two is highly dependent on its oil revenues, which is why it has consistently failed to comply fully with its production quota under the OPEC production cut agreement from November 2016.
Despite the agreement, Iraq has been actively expanding its oil export capacity, bringing the total at its southern ports to 4.6 million bpd. Iraq’s total oil export capacity is close to 5 million bpd, Energy Minister Jabbar al-Luiebi told a Chatham House conference in London yesterday, but noted that “Iraq has made it clear at every time and every event that Iraq will comply with OPEC declarations in good spirit, genuine spirit.”
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.