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|19 October, 2018

Iraq presses customers for data in clamp down on Basra oil resales

Iraq's state oil marketer SOMO collects data, info from term customers to track cargoes

A worker is seen at the Zubair oilfield in Basra, Iraq May 9, 2018.

A worker is seen at the Zubair oilfield in Basra, Iraq May 9, 2018.

REUTERS/Essam al-Sudani

SINGAPORE/DUBAI  - Iraq's state oil marketer SOMO is seeking data from its customers to see where their Basra crude cargoes were eventually consumed to catch buyers who may have flouted their purchase agreements, multiple industry sources said this week.

Iraq, the second-largest producer among the Organization of the Petroleum Exporting Countries (OPEC), currently restricts the delivery of its long-term crude sales to the buyers' own refining system, the sources said. However, the company did not enforce the rule in past years to ease sales of its rising supply and to gain market share from other producers.

Now, SOMO wants to stamp out the resales and divert some cargoes sold under the long-term contracts to its own trading business to maximize the profits from its oil sales, the sources said.

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The scrutiny on the Basra resales comes ahead of SOMO's decision next month how much oil it will supply to its term buyers in 2019. Spot sales of Basra have slowed as traders await SOMO's decision.

Basra crude sold by equity producers is not subject to any destination restrictions and can be sold around the world, the sources said. The producers include BP Plc, Lukoil, Malaysia's Petronas, and PetroChina.

SOMO has confronted customers who have sold cargoes without seeking consent from the state marketing company, said one of the sources familiar with the matter.

"It is a contractual obligation on customers not to re-sell the cargos without prior consent from SOMO," he said.

Iraq has said it plans to increase Basra crude exports from its southern ports to 4 million barrels per day (bpd) in the first quarter of 2019, up from the current record high of 3.62 million bpd. 

SOMO is expected to re-allocate some supplies to new partners such as China's state-run Zhenhua Oil to boost trade volumes to the country, the world's largest oil importer and Iraq's biggest customer.

"As for volumes for next year, if to Zhenhua or to any other company, it will be discussed and decided in November," said the source familiar with the matter.

In recent years, demand for long-term Basra crude has exceeded its supply, prompting SOMO to make changes to its annual allocations. While SOMO used to sign term agreements with trading companies, it now only has term deals with companies that own refineries, the sources said.

This would be similar to destination restriction clauses in the term contracts of other Middle Eastern producers including Saudi Aramco, Kuwait Petroleum Co and Abu Dhabi National Oil Co.

(Reporting by Florence Tan in SINGAPORE and Rania El Gamal in Dubai; Editing by Christian Schmollinger) ((Florence.Tan@thomsonreuters.com; +65 6870 3497; Reuters Messaging: florence.tan.thomsonreuters.com@reuters.net))