By Randy Fabi
The return of Iraq’s Kirkuk crude to the Mediterranean will add more pressure to a spot market already flush with supplies, and Russian oil could suffer the most from its addition. Iraq’s state marketer SOMO on Monday offered for sale 6 million barrels of Kirkuk crude for end-June loading. The tender is the first since last August as pipeline sabotage in Iraq has paralyzed Kirkuk exports. The high-sulfur crude was seen as competing most with Russia’s sour Urals crude, which has fallen a few cents since Monday to around $4.30. The Urals swaps market predicted the grade could plummet by more than a dollar in the next few weeks to around $5.50. “The fall is the Kirkuk effect,” one trader said. “Urals was already under pressure and the return of the crude only adds to it.”
The Iraqi crude enters an increasingly crowded market. Next month, the spot market welcomes the addition of 116,000 barrels per day of Azeri crude from the Baku-Ceyhan pipeline. The full impact of Kirkuk crude on the physical market will be felt only if Iraq is able to complete a few successful tenders, traders said. Iraq hopes to issue a second sales tender at the end of next month. “The key question not yet answered and what many buyers are waiting for is the grade’s quality,” another trader said. The grade is being marketed at a gravity of 36 degrees API with compensation built into the contract for any variation in quality.
Big players’ club
Only major European and US oil companies, such as Exxon Mobil, Chevron, and Eni, were expected to participate in the first tender, traders said. “With only a few days between the tender result and loading, it’s difficult to accommodate 6 million barrels in the Mediterranean,” a trader said. “Only big systems, big companies will be able to do this.” Two traders said Kirkuk crude could be traded between $7.50 and minus $6.50. That is 1-2 dollars lower than expected levels for Urals in early July.
Oil companies in the past have lost money by chartering vessels to Turkey’s Ceyhan terminal, but then leaving empty-handed because of sabotage to Kirkuk’s pipelines. Since the US-led invasion in 2003, sabotage along the Iraq-Turkey export route has meant shipments have rarely been possible. For now, traders expected Iraq to continue issuing tenders and refrain from long-term contracts until flow through the pipeline is more stable.
(Reuters, 22/6/06)