Iraq Begins Heavy Oil Exports After Complaints About Quality

Updated on
A tanker leaves the Basra Oil Terminal in the Gulf 50kms south of Iraq Sunday December 7, 2003.

A tanker leaves the Basra Oil Terminal in the Gulf 50kms south of Iraq Sunday December 7, 2003.

Iraq, OPEC’s second-biggest oil producer, is set to increase exports after starting a new grade of crude to quell customer complaints about the quality of its oil.

The Basrah Heavy crude will be exported for the first time starting Monday, shipped from the south on the Persian Gulf, Oil Minister Adel Abdul Mahdi said on his Facebook page. Orders for this month total 850,000 barrels a day, he said.

“This step is not only necessary but a must to preserve Iraq’s crude reputation,” Abdul Mahdi said. “We received a lot of complaints, had to cut output in a number of fields.”

Iraq is struggling to overcome an Islamist insurgency and years of under-investment in its oil industry. The country boosted exports to a record 3.1 million barrels a day in April, the International Energy Agency said in monthly report. With the new grade, Iraq will probably be able to ship 3.3 million barrels a day by the end of this year, according to Hamza Al-Jawahiri, an oil analyst in Iraq. Only Saudi Arabia is bigger among members of the Organization of Petroleum Exporting Countries.

“Iraq could get more orders on Heavy above what the minister mentioned,” Al-Jawahiri said by phone from Baghdad on Monday. “This month and coming months will witness an increase of exports from the south.”

$3 Discount

Iraq previously sold only Basrah Light grade, and had to give discounts of as much as $3 a barrel because it wasn’t clear how much of the oil was heavy or light. Brent crude, the benchmark for more than half the world’s oil, dropped 0.6 percent to $65.16 a barrel by 12:20 p.m. in Dubai on the ICE Futures Europe exchange.

Light oil is easier to refine into gasoline and diesel, while heavy crude is thicker and requires more processing to produce those fuels. As oil from Iraq’s south became heavier as the country tapped new wells, it wasn’t able to consistently supply cargoes of the same quality, forcing it to offer the discounts to some Basrah Light buyers.

Selling two grades will allow Iraq to better guarantee the quality of the two blends and to get the most value for its exports, Abdul Mahdi said. Iraq expects to stop discounting crude, he said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE