Lower July Iraq and Saudi exports to boost crude timespreads – Energy Aspects

Iraq is stepping up compliance with the Organization of the Petroleum Exporting Countries and allies (OPEC+) deal, with July Basrah crude exports to fall below 2.5 million barrels per day (mbpd), possibly even as low as 2.2 mbpd, consultancy Energy Aspects said in a note.

Within Asia, South Korean refiners have been hardest hit by the cuts to July allocations. Even China and India, the two largest lifters of Iraqi crude at around 1 mbpd each, appear to have been cut by 25–75%,” it said.

This comes after Saudi Aramco, the world’s largest oil exporter, reduced the volume of July-loading crude that it will supply to at least five buyers in Asia, sources said on Monday.

Energy Aspects said these shortfalls are likely to force Asian buyers to source crude from the Atlantic Basin, which should support U.S. and European crudes to move east.

“However, with Brent at $40, weakened Chinese domestic refining margins could continue to push teapots to resell some more crude cargoes,” it added.

The consultancy said all the other supply-led bullish factors will continue to support timespreads right now, particularly for sour crudes, which will show up most clearly in the Dubai contract and tightening of sweet-sour spreads.

Energy Aspects said refiners can buy spot barrels to substitute the cutbacks in OPEC+ term barrels, which has a disproportionately bullish impact on benchmark prices.

The impact of OPEC’s compliance on flat price will depend on a number of factors including the continued recovery in global economic activity, the value of the dollar and the potential for a second wave of COVID-19 in the autumn, it added.

Earlier this month, OPEC, Russia and allies agreed to extend record oil production cuts until the end of July.
Source: Reuters (Reporting by Sumita Layek in Bengaluru; editing by Jonathan Oatis)