The State Oil Marketing Organization (SOMO) of Iraq has finalized an agreement to buy up to 1.097 million tones of gasoil for delivery next year from Swiss dealer Vitol and oil major BP, traders said recently.
The company has been in agreement to pay a premium of $7.99 a barrel above Middle East quotes on a delivered basis, they said.
The cargoes are to be transported into the Khor al-Zubair terminal, which can only receive smaller vessels, because of draft limitations.
Vitol supplies fuel to Iraq in a regular basis, while BP supplied jet fuel to Iraq last time in 2011, one of the traders said.
SOMO has a July-December term deal with Vitol to buy near about 500,000 tonnes of gasoil at a premium of $9.67 a barrel above Middle East quotes.
As the prices are off a different basis, they are incomparable.
Pricing agency Platts, whose announced prices are used in the majority of deals in the Gulf and Asia, is moving towards the cleaner gasoil with 500 parts-per-million sulphur as its benchmark, instead of the 5,000 ppm sulphur gasoil used now.
Vitol and BP are possibly going to be shipping the cargoes from either Bahrain or Kuwait, with which they have term contracts, a dealer said.
With freight, demurrage and other costs predicted at about $4.10 a barrel, and Vitol’s term purchase cargoes from Bahrain pricing about $3 a barrel, the company’s revenue for this route could be at around 80 cents a barrel, the trader guesstimated. This could not be confirmed with Vitol, however.
Iraq lacks natural oil refining capability and suffers from a chronic deficiency of electricity. It uses gasoil to produce power.
Years of war, militant invasions, and under-investment have compelled Iraq to rely on imports for its fuel needs, making it one of the biggest purchaser of gasoil and gasoil in the region.
Iraq’s gasoil claim has been steadily increasing due to a rise in power generation demand, in a country where temperatures can go up to 50 degrees Celsius during summer, making power production especially crucial, dealers stated.
Iraq has got plan to spend up to $1.6 billion on solar and wind power stations over the upcoming three years to add 400 megawatts to the national grid to lessen daily blackouts.