Iraqi marketer Somo restarts crude sale tenders

Iraqi state marketer Somo has resumed spot crude tenders, as Opec+ cuts tighten Mideast Gulf supplies and bolster sale levels for sour crude.

The company today tendered to sell 1mn bl of free-destination Basrah Light loading on 28-30 June and separately offered 600,000 bl of Europe-bound Kirkuk blend loading on 29-30 June, according to documents seen by Argus.

Both cargoes can be resold. Somo will continue to reimburse API quality differences for the two grades, but only offers freight compensation for west-bound buyers of Basrah Light amounting to a maximum 10pc of the outright cargo value. Somo briefly removed freight subsidies for April-loading volumes, then reintroduced them at the 10pc cargo value limit as of the May loading cycle.

Somo only accepts bids at premiums to the official formula price of the final sale region for free-destination Basrah Light, and to the official Europe price for Kirkuk. The tenders close at 12:00 Baghdad time on 21 May.

It is Somo's first sell tender for Basrah crude since the March loading cycle, and its first attempt to market Kirkuk blend crude on a spot basis this year. It consistently offered monthly volumes of Basrah and Kirkuk over most of 2019. The company has this year sometimes tried to secure additional outlets for cargoes cancelled by buyers during the Covid-19 lockdowns, but did not tender out those volumes and accepted payment at just official formula prices. An Iraqi official said in March that global markets were too "fragile" for Somo to attempt spot sales at the time. Trade sources signalled the Iraqi company is under pressure to only sell spot volumes at premiums to official prices, obliging it to only issue tenders when there is robust demand for sour crude.

The restart of Somo's tenders comes as severe Opec+ output cuts restrict sour crude availabilities over May-June, tapering slightly in the second half of the year. Iraq is already targeting 650,000 b/d of Basrah supply reductions, to meet its 3.59mn b/d quota for May and June. Somo has cut June Basrah crude allocations to at least six European buyers, freeing it to reduce production in line with its Opec+ obligation. A total of 3.24mn b/d of Basrah was exported in the first quarter, of which 592,000 b/d went to northwest Europe and the Mediterranean, Argus tracking shows.

The shortfall of Iraqi crude pushed Argus assessments of Europe-bound Basrah Light and Heavy crude to record highs at the end of last week, with Kirkuk blend yesterday at its narrowest discount to North Sea Dated since January 2019.

Some buyers could remain apprehensive of Somo's Kirkuk offering. The company depends on transfers from the Kurdistan Regional Government (KRG) for its Kirkuk blend supplies, and talks between Baghdad and Erbil over governance, oil marketing and state funding are ongoing. The KRG provisionally agreed to hand over 250,000 b/d to Somo this year, but its failure to do since the start of the year has now driven Baghdad to withhold federal financing from the KRG.

Argus tracking data show Somo received just 51,000 b/d of Kirkuk blend in January-April, all heading to long-standing Turkish buyer Tupras. Under Somo's previous tender for December-loading Kirkuk blend it was not able to deliver one of the three sold cargoes to its buyer BB Energy, but it did deliver two cargoes to Repsol, according to market participants.

Somo's Kirkuk supply might nevertheless be in high demand, amid signs of tight Russian availabilities. A partial programme puts Urals exports at 1.325mn b/d over 1-5 June, 4pc below full-month May.

By Ruxandra Iordache