Iraq faces resistance from Asian buyers to change Basra pricing

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LONDON (Reuters) – Iraq’s proposal to change its pricing method for crude oil in Asia is facing opposition from refiners, which fear more risks because of a longer period between pricing and delivery, news agencies reported on Friday.
According to the report, the Iraqi Oil Marketing Company (SOMO) surprised traders this week by seeking to explore their plans to change the benchmark price of Basrah crude in Asia to be priced on the Dubai Mercantile Exchange as of January 2018 instead of pricing based on S & Platts.
The move would affect the price of about two million barrels per day of crude oil supplies to Asia, especially those destined for India, China and South Korea.
“The change is important and will be closely watched, not only from Middle East producers but from all stakeholders,” said Oystein Bernstein, Managing Director of Strong Petroleum in Singapore.
Under the new method, Basra crude will be priced using the monthly average price of Omani crude futures on the Dubai Mercantile Exchange two months before the oil is loaded. Other producers in the Middle East, such as Saudi Arabia, Kuwait and Iran, are pricing their raw materials based on the loading month.
This means that Iraqi crude loading October will be priced on the basis of futures on the Dubai Mercantile Exchange in August. This will expose buyers to risk, as they will only be notified by mid-September whether their bids have been accepted to purchase shipments, making it difficult for them to pre-hedge price changes.
“We are not in favor of that. They have to fix their (supply) program first before they try to change the measurement price. “The buyer asked not to be named because he was not authorized to speak to the media about it.
Traders say that the timing of pricing for other producers makes it difficult to compare raw material valuations.
Some buyers are concerned that about 80 percent of the crude used to price Oman futures contracts on the Dubai Mercantile Exchange is going to China, reflecting the economic and fundamentals of only one Asian buyer.
“The transition to Oman’s contracts on the DME is very ambitious … I think it will cause a few difficulties because it will be very difficult technically,” said Ady Emserovic of the Center for Energy Economics at the University of Surrey in Britain.
Somo did not comment on her motives for change. The move to the DME could bring higher prices to Sumo. The monthly average price of Oman’s crude oil contracts on the Dubai Mercantile Exchange (DME) was around $ 3 higher than the average of Oman and Dubai on the Plats platform between March and July of this year.
Some traders support this move. Knowing the prices of Iraqi crude two months before delivery gives traders who have shipments of Basra crude without specific destinations more time to determine the destination they will sell oil based on the price differences in the region.
It is not yet clear whether Sumo will go ahead with the move, as the company is expected to solve the problems customers have encountered, according to a source familiar with the Iraqi plan.
Iraq may change the price of the measurement but still maintain the current pricing period at the moment, which means that crude will continue to be priced based on the same month of loading.
Platts, which dominates the global pricing of oil in the current market, declined to comment on how to respond to the possible withdrawal of OPEC’s second largest producer.

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