Iraq’s hitting a couple of speed bumps as it gears up for 2018 oil sales, after OPEC’s second-largest producer made unprecedented moves to sell one-off cargoes this year in addition to supplies under long-term contracts.
The nation’s state-owned oil marketing company, known as SOMO, didn’t award two offers of spot shipments to Asian and European customers over the past month, with traders saying it was probably expecting more than what buyers were willing to pay. That’s a setback for the producer, which has sought to revamp the way it sells crude amid a global glut, weaker prices and increased competition from other Middle East producers as well as U.S. supplies.
Iraq began auctioning off some cargoes on the Dubai Mercantile Exchange this year for the first time in a bid to get better value for its supply while also curbing output as part of a deal with other producers. After considering implementing a new pricing methodology from January that would have broken away from the benchmark that top OPEC member Saudi Arabia uses, it walked back saying more time was needed to study the proposal.
“SOMO has to walk a tightrope between trying to capture the maximum value for its oil and its sales,” said Nevyn Nah, a Singapore-based analyst at industry consultant Energy Aspects Ltd. “The only concern is that term holders may reduce their volumes if official prices are too high.”
In October, SOMO was said to receive no bids in its auction for November supplies of its flagship Basrah Light grade. Only bids at a premium to the oil’s official selling price — set by Iraq for its long-term supply — were permitted, while buyers were valuing the crude at a discount, according to traders who asked not to be identified. The company also failed to award its first ever sell tender via S&P Global Platts this month, after receiving a top bid that was 7 cents a barrel below the crude’s OSP.