Iraq to alter crude export grades in 2021 with launch of Basrah Medium

London — Iraq is planning an overhaul to its key crude export grades next year with the introduction of a new medium sour crude known as Basrah Medium.

Iraq's State Oil Marketing Organization notified customers on Nov. 2 of its "intention" to export Basrah Light, Basrah Heavy and Basrah Medium crudes from 2021, with slight changes in specific gravity to the already existing two grades.

OPEC's second-largest oil producer Iraq had been planning these changes for the last few years as it was looking to offer more crude grades to satisfy customer needs and present a greater variety to the market.

The state oil marketer said these grades "will, tentatively, be on stream as of Jan. 1 2021," according to a letter seen by S&P Global Platts. A representative at SOMO confirmed the development.

Quality changes

Basrah Medium will have specific gravity of around 29 API, while the Basrah Light and Basrah Heavy grades will be around 33 API and 24 API, respectively, according to SOMO. "The exact specifications of the three grades will be provided shortly," SOMO added

Basrah Light and Basrah Heavy were initially marketed by SOMO as an API of 34 and 26 degrees but these grades have been much heavier in recent years as new oil fields came on-stream, changing their quality.

SOMO explained in the letter that this move was for the "intended segregation" of Basrah Light into two grades.

One of the main objectives for Iraq forming a new crude stream was to stabilize the quality of the two current grades on offer as more production was being sourced from lower-quality oil deposits.

The traditional Basrah crude used to be mainly from the Rumaila and Zubair fields, which produce a lighter oil, but the recent crudes includes a lot of medium and heavy oil from West Qurna 1, Ahdab and Halfaya fields.

SOMO had previously said the Basrah Medium grades would have an API gravity of 29-30 and 2% sulfur.

According to Basrah Medium's API, the crude will be similar in quality to Iran's Iranian Heavy, Brazil's Mero, Russia's Urals, Saudi Arabia's Arab Medium and Oman's Oman crude export blend.

All of Iraqi crude is sour; high in sulfur, but in terms of specific gravity, they range between medium and heavy. Heavy crudes normally have a specific gravity lower than 25 API, while medium grades tend to be between 25-34 API.

So far this year, Basrah Light and Basrah Heavy exports have averaged around 2.20 million b/d and 800,000 b/d, respectively, according to S&P Global Platts estimates.

2021 contracts

In the letter, SOMO asked customers to provide the daily quantity that they would be interested in as part of the 2021 crude allocations. Iraq is already currently finalizing its 2021 crude term contracts.

The Iraq oil ministry had previously said the introduction of a Basrah Medium crude grade would be contingent on the much-delayed expansion of the Fao export depot on the Persian Gulf.

Both Basrah Heavy and Basrah Light are loaded from the country's southern oil export terminals and single point moorings in the Persian Gulf.

Iraq markets most of its crude to Asian refiners, where it has placed increasing volumes of its key Basrah Light and Basrah Heavy grades in recent months.

Iraq split its Basrah crude grades before, launching exports of Basrah Heavy in June 2015 to improve the quality and stability of its more-lucrative Basrah Light grade.

It followed persistent complaints over variable quality from buyers, which led to cutbacks in upstream production and ships rejecting loadings.

Normally almost 70% of Iraqi crude heads to Asia while the rest goes mainly to Europe and the US.

The Asian market has been a priority for Iraq, where it competes for market share with other Middle East producers. Together with Kuwait, Qatar and Saudi Arabia, Iraq has recently been vying for more customers in Asia due in part to the loss of Iranian supply because of US sanctions.

Key buyers of Iraqi crude include China, India, South Korea, US, Greece, Turkey, Egypt, the Netherlands, Italy and Spain.

Iraq has seen its exports and production fall sharply in 2020 as the coronavirus pandemic pushed OPEC and its members to make deep cuts to mitigate the huge fall in oil demand.

Iraqi crude output has averaged 4.18 million b/d from January to October this year, according to S&P Global Platts estimates. The OPEC member pumped 4.72 million b/d and 4.54 million b/d in 2019 and 2018, respectively.