Iraq mulls boost in European oil deliveries amid declining Russian volumes: SOMO

Iraqi state oil marketer SOMO is considering signing crude sales contracts with new European buyers, SOMO's director general said June 22, amid EU plans to ban seaborne oil deliveries from Russia in the wake of the latter's invasion of Ukraine.

SOMO said it has recently received a number of positive replies from European companies that may lead to contracts with new buyers and higher sales of Iraqi crude in the continent, SOMO Director General Alaa al-Yasiri told state-run Iraqi News Agency.

Currently, SOMO has contracts to supply as much a 600,000 b/d of Basrah Medium, Basrah Heavy and Kirkuk crudes to European buyers, he added. Basra Medium and Basrah Heavy are medium sour grades constituting the majority of the country's exports, while Kirkuk is lighter and smaller in volume.

Although Iraq's medium sour grades do not comply with quality specifications of some crudes that are processed in European refineries, Yasiri said he expects to still see demand for those grades in the continent.

Yasiri also predicted that the European market could see a deficit of as much as of 1 million b/d of medium sour grades, which he added would create opportunities for a promising market in the long term for Iraqi crude.

Competing Russian crude

Iraq, which currently exports the majority of its crude to Asia, may also face competition in that market from Russian grades that are being sold at a discount to other crudes amid tightening sanctions imposed on Moscow.

S&P Global Commodity Insights' Platts last assessed benchmark crude grade Dated Brent at $120.54/b on June 21, compared with Russia's Urals crude at $80.295/b.

Iraqi Basrah crude is likely to face stiff competition in the current trading cycle as alternative grades from Russia and the West increasingly lure price-sensitive buyers in Asia, trading sources told S&P Global June 21.

Last year, Iraq, OPEC's second-biggest producer, was the top oil supplier to India, Asia's second-biggest crude importer, according to shipping data from Kpler.

Iraq supplied over 1 million b/d to India in 2021, more than a third of its total exports last year, according to Kpler. Iraq supplied China with 953,000 b/d in 2021, its second-biggest oil customer last year, data showed. Europe received 15% of Iraq's crude exports in 2021.

Higher exports to Europe

However, Iraq has been exporting more crude to Europe in recent months, with May volumes rising to 635,000 b/d from 591,000 b/d in April and 500,000 b/d in March, according to Kpler data.

Russian seaborne crude exports remained at post-pandemic highs in the first half of June, as India and China continued to snap up discounted volumes and EU member states retreat from oil trade with Moscow ahead of the bloc's Q1 2023 deadline to end imports of Russian crude and products.

The two Asian oil importers have now grown their share of Russian-shipped crude to almost 30% and 20% respectively, a combined growth of more than 1 million b/d on pre-war levels, Kpler data showed.

Russia's key export grade Urals has been trading at significant discounts to other crudes since the country invaded Ukraine on Feb 24. Russia's Urals is classified as a medium sour grade, with a specific gravity of around 31-32 API with a sulfur content of 1.7%. This makes it very similar in quality to other medium sour crudes such as Basrah Medium, Saudi Arabia's Arab Medium, Arab Heavy, Iranian Heavy, Brazil's Mero and Oman Crude Export Blend. Medium grades are within 25-34 API range, while heavy crudes normally have a specific gravity lower than 25 API.