IRAQI OIL TO U.S.
Oil tankers are set to deliver the biggest volume of Iraqi crude to U.S. shores in more than three years, as OPEC's second-largest producer vies for market share as pressure mounts on U.S. shale production.
According to Reuters shipping data, tankers carrying nearly 20 million barrels of Iraqi oil are due to sail to the United States in November, almost 40 percent above the amount booked to arrive in October. At an average rate of more than 660,000 barrels per day (bpd), it would be the largest monthly import since mid-2012, according to U.S. data.
The supply surge is emerging at a time when low oil prices are muscling U.S. shale producers out of the market, heightening competition among some OPEC members to secure market share.
In Europe, Saudi Arabia is targeting traditional buyers of Atlantic Basin and Russian crudes. In the United States, where Saudi Arabia has long been the biggest OPEC supplier, favourable prices are helping Iraq regain share among U.S. refiners that run heavier, high sulphur or sour grades.
"There's been a pull from the Gulf Coast for heavier and medium sour barrels and Basra Heavy been a part of that picture," Energy Aspects analyst Richard Mallinson said.
"If the pricing has got good when refiners are looking to (switch), then it comes on to the shopping list."
The Organization of Petroleum Exporting Countries is all but certain to stick to its policy of pumping oil at record rates to retain market share, as the price of a barrel of oil struggles to break above $50 a barrel.
Traders may have also spied a window of opportunity to move Iraqi crude to the United States, as the spread between U.S. benchmark crude WTI and its Middle East equivalent Dubai one-month swaps DUB-1M-S have fallen to a discount of around 30 cents, from a premium of $4 a barrel just a few weeks ago.
Total U.S. shale production is set to decline 118,000 barrels per day (bpd) in December, the biggest monthly decline on record, to 4.95 million bpd, the least since Sept. 2014, according to data from the Energy Information Agency.
Iraq cut its official selling price of Basra Heavy BASH-OSP-N to the United States to a discount of $5.85 a barrel versus the U.S. sour crude benchmark for November, the lowest since it began selling the grade earlier this year, while cutting Basra Light BAS-OSP-N by 50 cents for October.
Mars Sour crude WTC-MRS is commanding a discount of around $3.00 to $2.00 a barrel to WTI futures.
"We have definitely seen a pickup ... in October in PADD 3, which is the Gulf Coast in (imports of) medium and heavy grades. It's not just Basra Heavy, we saw Maya and we saw Kuwait export blend," Mallinson said.
It is not just non-OPEC barrels that Iraq must compete with. Saudi Arabia, along with some other OPEC members, have delivered cuts to their official selling prices to buyers in Europe and the United States in their quest to for market share, particularly as consumption in Asian hot spots such as China appears to be moderating.
"In spite of strategic stock-building by China and India, Asia has become a congested market," BNP Paribas analysts said in a recent report.
"Consequently, Saudi Arabia and other OPEC members like Iraq, have recently stepped-up marketing efforts elsewhere to diversify their exports destinations."
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