Leading pricing agency Platts will soon start a new price assessment for Iraqi Basra Light crude as the trading volume of the grade grows along with higher output, a senior company official said on Tuesday.
Platts, a unit of McGraw Hill, provides the dated Brent benchmark that is used to price about two-thirds of global crude and it also assesses Dubai and Oman, which are benchmarks for Gulf crude exports.
Iraq overtook Iran as OPEC’s second-largest producer in June and the assessment could pave the way for Basra Light to become one of the grades used to assess the Middle Eastern marker Dubai that prices about 12 million barrels per day of Gulf crude exported to Asia.
Including Basra Light may improve liquidity for the Dubai crude as output of the benchmark grade declines, making the marker more reflective of fundamentals. It will also increase trading in Basrah Light as participants seek to take positions in a grade that could become part of the benchmark.
“Basra Light’s production has grown a lot,” Jorge Montepeque, Platts’ global director of market reporting, told Reuters. “It obviously deserves to have its own quotation based on its volume and that it’s traded on spot.”
The firm declined to say when the assessment would start as it needs time to study the crude quality and survey logistics such as terminals and storage facilities, even though rivals Argus Media and Japan’s RIM are already assessing the crude.
Iraq’s oil output has rebounded as the country recovers from decades of war and crippling sanctions. The country pumped 2.97 million barrels per day (bpd) in July.
Exports from Basra in the south were at 2.216 million bpd in July, the head of Iraq’s State Oil Marketing Organisation (SOMO) said last week.
“The analysis takes time and engagement with the industry. I think we’re nearing it,” Montepeque said.
The process is more complex than the assessments for other grades as “there are three locations from where Basra Light is supplied and there are also differences in quality,” he said.
Platts and Iraq’s SOMO are holding discussions to add Basra Light as a deliverable crude for the Dubai benchmark, an industry source said.
“The view is that by the end of the year quality issues will be sorted and they should see signs of one particular terminal emerging for the delivery point,” the source said.
Basra Light is also an attractive choice as it can be traded in the spot market without any destination restriction, unlike other Gulf grades, he said.
Platts will need to launch the Basra Light assessment before considering using the grade as a deliverable crude for Dubai, Montepeque said.
“To us that question (about whether Basra Light will become a deliverable crude to Dubai) is valid because it’s in the same geographical vicinity,” Montepeque said.
“But before that, we need to review and monitor it and critically launch the spot assessment.”
Comments »