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Iraq’s oil pricing change depends on two factors

Oil&Gas Materials 22 August 2017 11:23 (UTC +04:00)

Baku, Azerbaijan, Aug.22

By Leman Zeynalova – Trend:

The first thing to point out is that Iraq is contemplating the oil pricing change for Asia and is looking for customer opinions on it before it goes ahead, Christopher Haines, head of oil and gas at BMI Research, (a Fitch Group company) told Trend.

That response will likely be pivotal to Iraq’s ultimate decision, as will the reaction from other countries exporting into Asia, he added.

“I think for Iraq, this is probably just an effort to maximize earning for its oil exports. Despite being the second largest oil exporter in OPEC, none of Iraq’s crude grades are used in the benchmark assessments that are used to sell Middle East crudes into Asia, so it still depends heavily on what happened in Brent, the UAE and Oman for pricing,” said the expert.

By going through the DME, SOMO has reportedly managed to get a slightly higher premium on some of the oil it has auctioned, said Haines. Adding that either way the move will likely get more pricing recognition for the Basra grade: if customers support the move there could be moment to bring in the Basra grade to price reporting, alternatively if Iraq moves to DME it will get a more specific pricing of the Basra grades.

Iraq has informed its customers that it plans to switch its price benchmark for Basra crude in Asia to DME Oman futures from January, dropping the average of Platts' Oman-Dubai quotes, in a major shift in the way it prices its oil.

The proposal by state-oil marketer SOMO would mark a significant change by OPEC's second-largest producer away from fellow members Saudi Arabia, Kuwait and Iran, which have been using price assessments from global agency S&P Global Platts as their benchmark for decades.

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Follow the author on Twitter: @Lyaman_Zeyn

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