Viewpoint: Mediterranean refiners look to Iraq

  • Market: Crude oil
  • 28/12/22

The EU's ban on Russian seaborne crude imports has opened the door to an increased flow of sour Middle East grades into the Mediterranean.

Iraq's Basrah grades have already emerged as a popular alternative to medium sour Urals, with many European refiners shunning Russian crude months ahead of the embargo. Exports of Iraq's Basrah streams to northwest Europe and the Mediterranean increased by 49pc on the year to nearly 640,000 b/d in the January-November period, Argus data indicate.

Iraq's Kirkuk blend, most of which is marketed by the Kurdistan Regional Government (KRG), is another obvious alternative for Mediterranean refiners, given it is loaded from the Turkish port of Ceyhan. But an ongoing dispute between Iraq's federal government in Baghdad and the KRG over control of oil resources in the country's semi-autonomous Kurdish region has left Mediterranean refiners wary of taking the grade for fear of risking their relationships with Iraq's Somo, Iraq's federal marketer of Basrah crude. In recent months this has resulted in more KRG Kirkuk volumes being sold to buyers in Asia-Pacific at cheaper prices in order to compete with discounted Urals. That trend may gather momentum in 2023.

Turkey, which is not a member of the EU, has been an outlier in the Mediterranean. Its refiners have stepped up their intake of Urals, taking advantage of deep discounts to the North Sea Dated benchmark stemming from the sharp drop in demand from European refiners. Russian crude supply to Turkey more than doubled on the year to 210,000 b/d in January-September, according to the country's energy regulator EPDK. Russia displaced Iraq as Turkey's top crude top supplier in May, July and September.

Sweet spot

The outlook for sweet crude supply in the Mediterranean has improved with the stabilisation of Libyan exports. Libyan crude production has been around 1.2mn b/d since August, according to state-owned oil firm NOC, having dropped to as low as 560,000 b/d low during the intermittent blockades that disrupted several key oil fields and export terminals between April and July this year. A dispute between NOC and the Government of National Unity (GNU) was at the heart of the blockades. But in mid-July the GNU replaced Mustafa Sanalla as NOC chairman with Farhat ben Gudara, ending the protests that had hampered the country's oil sector.

The subsequent recovery in production has enabled the country to maintain crude exports at around the 1mn b/d level since August, and market participants say they now view Libya as a reliable supplier. The Mediterranean remains Libya's core export market, followed by northwest Europe. Some Libyan grades have been cropping up in rare northwest European destinations in 2022. In August a cargo of the country's main crude grade, light sweet Es Sider, loaded for Germany in August for the first time since Argus records began in 2010. Es Sider cargoes have regularly headed to Germany since then, coinciding with efforts by German refiners to wean themselves off Urals. European demand for the middle distillate-rich grade could increase further in 2023 once the EU's ban on Russian oil product imports comes into effect on 5 February.

Exports of Algerian Saharan Blend, a rival light sweet grade, increased by 11pc on the year to 408,000 b/d in the January-November period this year, with 78pc of that shipped to the core northwest European and Mediterranean markets.


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