BAGDAD: Iraq has decided to sell its Basrah Light crude next month to customers in Asia at the steepest discount in at least 11 years, following Saudi Arabia’s lead as Middle Eastern producers seek to defend market share.
Basrah Light, a high-sulfur oil used by refiners including China Petroleum & Chemical Corp., was set at $4 a barrel below the average of Middle East benchmark Oman and Dubai grades, according to a statement from Iraq’s Oil Marketing Co. That’s the lowest since at least August 2003, The official selling price to U.S. buyers was cut by 30 cents compared with December, while shipments to Europe were marked up by 10 cents.
Iraq is reducing export prices to Asia after a similar move by Saudi Arabia last week. The two nations are the biggest producers in the Organization of Petroleum Exporting Countries, which decided against cutting its production quota at a Nov. 27 meeting even as the highest U.S. output in three decades is seen exacerbating a global glut.
Saudi Arabian Oil Co. reduced its January price for Arab Light sales to Asia to $2 a barrel below the Oman-Dubai average, the Dhahran-based company said in an e-mailed statement on Dec. 4. That’s the widest discount since June 2000 when Bloomberg began compiling the data. Its Arab Medium grade, which National Iranian Oil Co. and Kuwait Petroleum Corp. have followed in the past, was cut by $1.85 from December.
“The increase in discounts is seen as a move by Middle Eastern producers to defend market share,” Erik Nikolai Stavseth and Kurt Waldeland, analysts at Arctic Securities ASA in Oslo, said today in an investor note. “This should incentivize Asian buyers to increase stockpiling short term, supporting seaborne crude volumes out of the Middle Eastern Gulf. At the moment, owners are still enjoying firm freight rates.”
VLCCs, or Very Large Crude Carriers, are commanding spot-market rates of about $64,000 a day, while Suezmaxes are being quoted at about $38,000 a day, the analysts said. “We remain positive on the crude tanker segment moving into 2015 on the back of limited supply growth and continued increase in average distances sailed,” they said.
Middle East producers form half of OPEC’s 12 members, which collectively supply about 40 percent of the world’s oil. Iraq ships Basrah Light from its oil terminal in the Persian Gulf and also exports Kirkuk crude to U.S. and European markets mainly via the Turkish Mediterranean port of Ceyhan.
