Iraqi Basrah crude spot trade returns for February

Spot supplies of February-loading Iraqi Basrah crude have traded after scant availability in the previous two months.

Several trading sources said Iraq's foreign equity producers, which are paid in crude for their investment in the country's oil sector, were not allocated any December or January-loading Basrah cargoes by state-owned marketer Somo. But this does not appear to be the case for February.

Market sources said an equity producer based in Asia-Pacific sold a cargo of Basrah Medium on the spot market at a 40¢/bl premium to the grade's official February formula price for the region. Another February spot trade for Basrah Medium was heard at 10-20¢/bl premium to the official formula price, although this was not confirmed. Meanwhile in Europe, several cargoes of February-loading Basrah Medium have changed hands at a 30-70¢/bl premium to the grade's official formula price for the region, market sources said.

The higher equity allocations for next month coincide with rising demand from Chinese and European buyers, according to market participants.

In Europe, strong refining margins for middle distillates have pushed up values for rival crude grades including Russian medium sour Urals, which closely competes with Basrah Medium. Another alternative, North Sea crude Johan Sverdrup, recently hit its highest price since Argus began assessing the grade in February 2020.

In China, Covid restrictions and depressed refining margins have weighed on crude demand recently, but deteriorating arbitrage economics have made Basrah look a more attractive option than grades priced against the North Sea Dated benchmark such as Johan Sverdrup.

The North Sea Dated benchmark, the basis against which the majority of Atlantic basin crude imports to China are priced, has averaged $85.59/bl so far this month, compared with December's average of $74/bl. Furthermore, the front-month Brent-Dubai exchange-of-futures-for-swaps (EFS) - the premium of Ice Brent futures to Dubai swaps and a key indicator of the west-east arbitrage - has widened to an average of $3.67/bl so far this month from $2.94/bl in December.

Argus tracking shows that 2.94mn b/d of Basrah Heavy, Basrah Medium and Basrah Light was exported in 2021. While not all tankers have flagged their final destinations, the data so far indicate that around 2.23mn b/d of that went to Iraq's core Asia-Pacific market including 936,000 b/d to China. Some 423,000 b/d was shipped to northwest Europe and the Mediterranean.

Iraq stopped exporting the Basrah Light grade on 1 January.

By Kuganiga Kuganeswaran and Azlin Ahmad