Jun 23, 2022
Asia’s Thirst for Cheap Russian Oil Hits OPEC’s No. 2 Producer
(Bloomberg) -- Iraq may end up as one of the biggest losers from cheap Russian barrels flowing to Asia with lukewarm demand for its key grades.
There have been no spot purchases of Iraq’s Basrah Medium or Basrah Heavy crude so far in the current Asia trading cycle, while a tender to sell Heavy oil didn’t get awarded, said traders who buy and sell the grades. Typically, India and China are major buyers of these varieties, although they’ve boosted purchases of discounted Russian crude after the invasion of Ukraine.
Basrah Medium and Heavy crude are the two main grades exported by Iraq to international markets, so any cut to volumes or prices would be a blow to OPEC’s second-biggest producer. Sellers of Heavy oil discussed providing cargoes at a discount to official selling prices to entice buyers, traders said.
Another aspect dulling the appeal of the Iraqi grades is the type of fuels that can be produced. Basrah Medium and Heavy tend to yield more, less profitable fuel oil, which is used in power stations and shipping. Refiners are seeking -- and are willing to pay higher premiums -- for oil that yields more products such as diesel and gasoline, which are in high demand.
The Iraqi grades are an outlier in Asia, where robust demand led to an earlier-than-usual start of the trading cycle for physical crude buying. By comparison, cargoes of Abu Dhabi’s Murban oil -- which yields more diesel -- traded at a premium of $10 to $11 a barrel to the Dubai benchmark this month.
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