Iraq to split Basra Light crude into two grades

A proposal for the split has been put forward by Iraq's State Oil Marketing Organization (SOMO)

Iraq has had quality issues with Basra Light crude streams.
Iraq has had quality issues with Basra Light crude streams.

Iraq's State Oil Marketing Organisation (SOMO) has made a proposal to split its Basra Light crude supply into two grades – light and heavy, Reuters has reported.

The two grades are for exports from Iraq’s southern terminals to buyers in Asia. SOMO has requested its Far East clients’ feedback, after putting forward the proposal.

Once a decision is reached, SOMO will set monthly official selling prices for each grade.

The heavier grade with an API gravity of 24-25 degrees will be loaded from its Single Point Mooring (SPM) terminals, while the light grade will have an API gravity of 29 degrees.

Iraq has been exporting heavier oil from its SPMs in southern Iraq, with an API gravity of 26-27 degrees, since the second quarter due to a rise in new production from fields such as West Qurna operated by Lukoil, traders told Reuters.

The news agency reported that the offer of the heavy grade took some buyers by surprise raising questions on how it will be sold.

"There are many ambiguities in the letter, and we need to conduct a hearing with SOMO to see what they really have in mind," a Japanese crude trader said.

"It’s hard to say at this point how this would impact our purchases."

The split in Iraqi supply could start from around 2015, said the Japanese crude trader. Asia typically imports more than half of Iraq's Basra Light, with China and India being its main buyers.

Chinese and Indian buyers such as Sinopec and Reliance Industries Ltd may find the Iraqi heavy grade more palatable given their ability to handle such grades, traders said.

"While SOMO is paying some compensation depending on what API you get, for some refiners with simple plants it's not enough," a London-based trader told Reuters.

"On the flip side, the most flexible plants in Asia are at times making a killing out of it."

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