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Iraq offers Saudi-style February discounts to oil customers in Europe | ASHARQ AL-AWSAT English Archive 2005 -2017
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Baiji oil refinery, north of Baghdad, on December 8, 2014. (Reuters/Ahmed Saad)

This December 8, 2014 file photo shows Baiji oil refinery, Iraq's largest, north of Baghdad, Iraq. (Reuters/Ahmed Saad)

This December 8, 2014 file photo shows Baiji oil refinery, Iraq’s largest, north of Baghdad, Iraq. (Reuters/Ahmed Saad)

Al-Khobar, Asharq Al-Awsat—Iraq has offered discounts to European purchasers of its oil in February, similar to those offered by Saudi Arabia, amid signs of intense competition between OPEC’s two largest producers.

In a statement released on Sunday, Iraq’s state-owned oil company SOMO said it would be offering European purchasers of its flagship Basra Light crude discounts of 1.60 US dollars per barrel compared to January’s prices.

Saudi Arabia’s state-owned oil company Saudi Aramco announced on January 5 it would be offering European customers a 1.50–1.70 dollar per barrel discount from January prices for its own Arabian Light crude in February.

“In terms of discounts to Europe, there is nothing new here. It’s quite clear Iraq wishes to hold on to its market share in the continent,” Kuwaiti analyst Essam Al-Marzouk told Asharq Al-Awsat.

Iraq will be raising prices for sales to Asia, however, a move the Kingdom also took for its own February shipments.

Customers in Asia will now pay 30 cents extra per barrel compared to January prices for Basra Light crude, and 1.9 dollars extra for Iraq’s Kirkuk grade.

The Kingdom had also announced it raised prices for Asia, with Arabian Light selling for an extra 55 cents a barrel and Arabian Heavy for an extra 70.

Marzouk said Iraq’s decision here “made sense given how Iraq wishes to raise its production this year and needs to offload the highest possible amount to Asia, which we in the region consider the most important market.”

He said higher refining margins in Asia at the moment, in addition to lower oil prices, gave Iraq the opportunity to raise its prices without giving up any of its market share in the lucrative region.

Oil prices have halved from levels of above 100 dollars per barrel during 2013 and early 2014 to reach their lowest levels since 2009 following the global financial crisis, with Brent Crude prices falling to around 45 dollars on Tuesday.

This has put a strain on a number of countries such as Iraq, whose revenues are derived largely from petroleum exports.

Iraq has also had to contend with a drop in its production levels due to oil refineries and installations being damaged or taken over by the Islamic State of Iraq and Syria (ISIS), which has captured vast swaths of northern Iraq, including its largest oil refinery. The Baiji oil refinery was occupied by the extremist group for about five months during 2014.

With the falling oil prices and the threat of ISIS, Iraq faces numerous challenges in rebuilding its oil industry, though there has recently been some progress towards this goal, with government forces recapturing the Baiji oil refinery and the resolution of an oil dispute with the autonomous Kurdistan region of Iraq, which will help raise output by allowing Baghdad to export oil through Erbil.

Following the agreement between Baghdad and the Kurdistan Regional Government in December, a total of 300,000 barrels per day (bpd) of Iraqi oil from the Kirkuk oil field will now pass through Kurdistan to Turkey’s Cihan port for export to global markets.

Speaking to Asharq Al-Awsat in December, Iraqi Oil Minister Adel Abdul Mahdi said Iraq wanted to raise its export levels to 3.3 million bpd in 2015 after the Kirkuk oil field has returned to its full capacity of 4 million bpd.

He said Iraq’s budget for 2015 had determined an average oil price of 60 dollars per barrel, down from 90 dollars per barrel in the budget for the previous year, due to the current fall in prices.

In comments carried by Bloomberg Abdul Mahdi said on Sunday on his return to Iraq from Cairo that he was negotiating a deal that would see Egypt purchase 4 million barrels of oil from Iraq each month, which is equivalent to 133,000 bpd.

He added, however, that the deal was still to be worked out, especially considering Egypt’s request for 270-day grace period upon receiving its shipments, which Iraq wants reduced to 90 days.