Iraq cuts crude oil supplies for most Indian refiners in 2021

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Iraq cuts crude oil supplies for most Indian refiners in 2021

Iraq has reduced annual supplies of Basra crude oil to several Indian refiners by up to 20 per cent for 2021, industry sources said, in a rare move by OPEC’s second-largest producer which is trying to meet its obligations under the group’s production deal.

Iraq was the top oil supplier to India in 2020 and a reduction in long-term Basra crude supplies could erode Baghdad’s market share in the world’s third largest oil importer and consumer.

Iraq’s Oil Marketing Company (SOMO) has reduced the 2021 Basra term volumes to several Indian refiners by between 10 per cent and 20 per cent, the sources said.

SOMO did not immediately respond to a Reuters request for comment.

“We never expected Iraq to cut volumes. We may have to look for alternatives like tapping the spot markets,” said a source at one of the Indian refiners.

“This is happening at a time when we are preparing to increase run rates as fuel demand is recovering.”

SOMO told Indian refiners that it had reduced annual contracts for all Asian buyers to compensate for higher volumes produced in the previous year, one of the sources said.

Iraq has been striving to meet its output target under an agreement between the Organization of Petroleum Exporting Countries and allies, including Russia, to limit production and support global oil prices. Baghdad is heavily reliant on oil revenues to support the country’s economy.

Iraqi Oil Minister Ihsan Abdul Jabbar said earlier in January that it will stay committed to OPEC decisions and compensate for its overproduction.

India on Tuesday complained that recent output cuts by some OPEC countries had created uncertainty for customers and led to a surge in global oil prices.

The changes in term supply volumes come as Iraq launched its new sour crude grade Basra Medium in January by splitting existing Basra Light crude production into two grades to improve the quality of its oil. SOMO also exports a third grade Basra Heavy.

The sources said SOMO cut term supplies to Indian Oil Corp , the country’s top refiner and its biggest Indian client, by 10 per cent to about 350,000 barrels per day (bpd) for all three Basra crude grades, while the volume for Mangalore Refinery and Petrochemicals Ltd fell by 17 per cent to 50,000 bpd.

SOMO is planning to cut the oil contract of Bharat Petroleum by about a quarter from last year’s 100,000 bpd, the sources said, adding that discussions with BPCL were still ongoing as the Indian company’s annual contract begins from April.

Hindustan Petroleum, which buys Basra Light oil, has asked SOMO to reduce its term supplies to about 50,000 bpd in 2021, down from about 80,000 bpd in 2020.

Iraq has agreed to HPCL’s request for lower supplies, while the companies are in talks about additional supply of Basra Medium grade, they said.

The annual oil contract for Reliance Industries, operator of the world’s largest refining complex, has also been changed. Reliance will get 33,000 bpd of Basra Medium grade instead of 66,000 bpd of Basra Light, the sources said.

The Indian refiners did not respond to Reuters’ requests for comment.

The supply cuts to India followed a $2.5 billion oil prepayment deal between SOMO and Chinese state oil trader Zhenhua Oil Corp for 48 million barrels of Basra crude.

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