Iraq’s SOMO close to JV with China’s Zhenhua to boost crude sales

Flames rise from the burning of excess hydrocarbons at the Hammar Mushrif new Degassing Station Facilities site inside the Zubair oil and gas field, north of the southern Iraqi province of Basra on May 9, 2018. (AFP)
Updated 27 August 2018
0

Iraq’s SOMO close to JV with China’s Zhenhua to boost crude sales

  • The move will bolster Iraq’s position in Asia, the world’s biggest and fastest-growing oil-consuming region
  • China is under the pressure to cut oil purchases from Iran, OPEC’s third-largest producer

BEIJING/DUBAI: Iraq’s state oil marketer SOMO is close to a deal with China’s state-run Zhenhua Oil to boost the OPEC member’s crude oil sales to the world’s top oil importer, four sources with knowledge of the matter said.
Iraq is the second-largest producer in the Organization of the Petroleum Exporting Countries (OPEC). The move will bolster Iraq’s position in Asia, the world’s biggest and fastest-growing oil-consuming region, which already takes 60 percent its oil exports at some 3.8 million barrels a day (bpd).
“Zhenhua helped Iraq to penetrate the Chinese market and make more revenues for Iraq,” said a senior source familiar with the discussions on the deal, adding that a 50/50 proposed joint venture could be finalized in October or November.
Another source said the deal was pending regulatory approvals, giving no further details.
It is not clear where the JV would be located, but two of the sources familiar with the negotiations said the port city of Tianjin, near Beijing, was under discussion. Singapore is also among the options, they said.
All four sources declined to be named as they were not authorized to discuss commercial matters with media.
Zhenhua declined to comment. SOMO did not immediately respond to an email request for comment.

Under Pressure

China is under the pressure to cut oil purchases from Iran, OPEC’s third-largest producer, as the United States re-imposes sanctions on Tehran and threatens to choke off the Islamic republic’s oil exports to zero.
Amid the trade dispute between Washington and Beijing it is also unclear whether Chinese importers will be able to continue to import US crude.
The SOMO-Zhenhua deal would give China another crude supply option as the Iran and US oil flows are threatened.
Zhenhua’s relationship with SOMO goes back to former Iraqi President Saddam Hussein’s days, when China-based parent company defense conglomerate Norinco, was among the first Chinese entities active in Iraq’s oil and gas exploration.
Last year, Zhenhua won a term contract to supply diesel fuel to SOMO for the first time, and it also recently entered a deal to develop Iraq’s East Baghdad oilfield.
Zhenhua has been marketing Iraq’s main crude grade, Basra Light, for SOMO since the start of 2018 and has also sold some to Taiwan, said a separate Singapore-based trading source.
Zhenhua, the smallest of China’s state-run oil and gas majors, has over the past three years expanded its foothold in oil sales to independent Chinese refiners, which were only allowed to start importing crude from 2015 and now make up some 20 percent of China’s total crude imports.
Zhenhua’s crude sales to such independents, sometimes known as “teapots,” hit a record 6.5 million tons last year, or 131,000 bpd, equivalent to about 7 percent of overall teapot purchases, according to industry estimates.
China’s state oil majors Sinopec, CNOOC and PetroChina are regular Iraqi oil customers under term supply deals with SOMO or oilfield service contracts.


Oil extends 7% slump from previous day

Updated 14 November 2018
0

Oil extends 7% slump from previous day

  • Oil markets are being pressured from two sides: a surge in supply and increasing concerns about an economic slowdown
  • OPEC has been making increasingly frequent public statements that it would start withholding crude in 2019

SINGAPORE: Oil markets slipped again on Wednesday, extending losses from a 7 percent plunge the previous session as surging supply and the specter of faltering demand scared off investors.
US West Texas Intermediate (WTI) crude oil futures were at $55.50 per barrel at 0514 GMT, down 19 cents from their last settlement.
International benchmark Brent crude oil futures were down 22 cents at $65.25 per barrel.
Crude oil has lost over a quarter of its value since early October in what has become one of the biggest declines since prices collapsed in 2014.
The slump in spot prices has turned the entire forward curve for crude oil upside down.
Spot prices in September were significantly higher than those for later delivery, a structure known as backwardation that implies a tight market as it is unattractive to put oil into storage.
By mid-November, the curve had flipped into contango, when crude prices for immediate delivery are cheaper than those for later dispatch. That implies an oversupplied market as it makes it attractive to store oil for later sale.
Oil markets are being pressured from two sides: a surge in supply and increasing concerns about an economic slowdown.
US crude oil output from its seven major shale basins is expected to hit a record of 7.94 million barrels per day (bpd) in December, the US Department of Energy’s Energy Information Administration (EIA) said on Tuesday.
That surge in onshore output has helped overall US crude production hit a record 11.6 million bpd, making the United States the world’s biggest oil producer ahead of Russia and Saudi Arabia.
Most analysts expect US output to climb above 12 million bpd within the first half of 2019.
“This will, in our view, cap any upside above $85 per barrel (for oil prices),” said Jon Andersson, head of commodities at Vontobel Asset Management.
The surge in US production is contributing to rising stockpiles.
US crude stocks climbed by 7.8 million barrels in the week ending Nov. 2 to 432 million as refineries cut output, data from industry group the American Petroleum Institute showed on Tuesday.
The producer group Organization of the Petroleum Exporting Countries (OPEC) has been watching the jump in supply and price slump with concern.
OPEC has been making increasingly frequent public statements that it would start withholding crude in 2019 to tighten supply and prop up prices.
“OPEC and Russia are under pressure to reduce current production levels, which is a decision that we expect to be taken at the next OPEC meeting on Dec. 6,” said Andersson.
That puts OPEC on a collision course with US President Donald Trump, who publicly supports low oil prices and who has called on OPEC not to cut production.