Due to lack of a payment mechanism, Taiwanese firm Formosa Petrochemical will not be buying Iranian oil despite a U.S. waiver to do so, and will replace part of its Iranian oil intake with crude from Iraq, company spokesman KY Lin told Reuters on Thursday.
Taiwan was one of eight Iranian oil buyers that received U.S. waivers to continue importing reduced volumes of oil from Iran at least until early May 2019.
However, the lack of mechanism to pay for Iranian oil is a challenge to Formosa Petrochemical, which has turned to Iraq to replace part of the barrels it would have otherwise purchased from Iran.
"There is no payment mechanism, so we will suspend Iranian oil loadings for the time being," Formosa's Lin told Reuters.
"So the Iraqi contract is to replace some of the Iranian volume," the spokesman said, adding that the company had signed a term deal with Iraq's state oil marketing company SOMO to buy Basra Light crude next year.
Formosa Petrochemical has been a regular buyer of Basra Light on the spot market, purchasing around 2 million barrels of the crude grade every month.
However, SOMO has recently moved to edge out resellers of its destination-restricted Basra crude cargoes on the spot market, which has led to a significant drop in spot trades in Asia and in Europe. The reduced spot trading activity has started to push buyers to look for term contracts with Iraq.
Related: Goldman: Oil Prices Set For Rebound In 2019
Formosa Petrochemical has so far stayed away from term contracts with Iraq because of loading and shipping delays at Basra. Now the lower spot trade availability and upgrades at the Basra port that has cut waiting time has convinced the Taiwanese to sign a term contract with Iraq.
Iraq, for its part, will only be too happy to supply more of its oil to an Asian customer. OPEC's second-largest producer after Saudi Arabia is 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
More Top Reads From Oilprice.com:
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More