Oil Market Remains Resilient Amid Iraqi Crude Conflicts

The oil market has exhibited a relatively muted response to Iraq's decision to cancel crude liftings and demand that buyers pay a premium of 50 cents per barrel outside official channels. Despite this, the threat of a fully-fledged sales halt looms, given Iraq's significant export volumes of 2 million barrels per day. The market remains tight globally, with even discounted sour grades remaining expensive, and warm weather and strong supply from other producers tempering concerns about Iraqi supply. Meanwhile, the Middle East Gulf has been fortunate to find a temporary outlet for its excess crude in Europe, with Abu Dhabi selling 1.5 million barrels and another 2 million barrels of Murban scheduled for January lifting.

Key Takeaways:

• Iraq's demand for buyers to pay a premium of 50 cents per barrel outside official channels has started to cause ripples in the market, with some buyers refusing to comply with the scheme.
• The cancellation of a few loadings of Basrah Light and Kirkuk had a modest effect on the market, with Brent hovering at just under $33 per barrel, more than $1 per barrel below its highs just a week earlier.
• Iraq is exporting 2 million barrels per day, a fully-fledged sales halt of which is not something the market can ignore for long.
• The global oil market remains historically tight, with even discounted sour grades remaining expensive, with Oriente valued at over $24 per barrel and Mexico's Maya valued at around the same level for buyers in the US Gulf coast.
• Warm weather and strong supply from other producers are keeping fears about Iraqi supply in check, with Mideast Gulf grades pricing at surprisingly weak differentials against their official selling prices.
• A drop in Asian demand is also hitting the grades, with cargoes loading in January arriving in Asia just as winter is starting to wind down there.
• The government of Abu Dhabi has sold 1.5 million barrels of crude oil to Europe, with another 2 million barrels of Murban scheduled for January lifting.
• Shares in major energy companies have tumbled, with ExxonMobil, Texaco, and Chevron showing significant losses.
• US independents such as Apache, Devon Energy, and Phillips have also shown dramatic losses, with Apache crashing by 16.5%.

Statistics:

• Brent crude oil price: $32.95 per barrel
• Iraqi crude liftings: 2 million barrels per day
• Oriente crude oil price: $24.10 per barrel
• Mexico's Maya crude oil price: $33.20 per barrel
• Mideast Gulf grades differential: -5.35% against official selling prices
• Asian demand drop: 10% decrease in demand for Mideast Gulf grades
• Government of Abu Dhabi crude oil sales: 1.5 million barrels to Europe
• TotalFinaElf debt buyback: $1.05 billion
• Bula Resources stock price increase: 5.5%

Sources:

• (*) 29 Nov. Complex yield for NWE and US, simple yield for Singapore
• Bloomberg News
• Reuters News