Iraq's fuel oil exports poised for record highs, boosting revenues and global supply

Shafaq News/ Iraq's fuel oil exports are on track to hit all-time highs this year after the country ramped up shipments in October, as domestic demand eased while output rose, according to industry sources and ship-tracking data.

The boost in exports of the residue fuel will support oil revenues for the Organization of the Petroleum Exporting Countries' (OPEC's) second-largest producer despite stagnant crude shipments this year, due to production caps under quotas set by OPEC and its allies, or OPEC+.

Higher exports from Iraq will also add to global supply and ease elevated prices in Asia while reducing feedstock costs at refineries.

Exports are set to breach 18 million metric tons (380,000 barrels per day) in 2024, a record-high annual volume that exceeds last year's record of more than 14 million tons, according to calculations based on data from Kpler and LSEG.

Iraq state refiner SOMO did not immediately respond to a request for comment.

Iraq's fuel oil is mainly high-sulphur and straight-run, which can be processed in refineries into higher-value products such as diesel. Most of Iraq's fuel oil cargoes have landed in Singapore and India.

Iraq's fuel oil exports exceeded 2.15 million metric tons in October, the highest monthly volume on record, based on Kpler and LSEG data.

This was coupled with a seasonal decline in domestic demand of about 100,000 barrels per day from the previous month, said Palash Jain, Middle East oil market consultant at FGE.

"Given reduced domestic demand and higher HSFO (high-sulfur fuel oil) cracks, increasing fuel oil exports in October was economically advantageous for Iraq," he said.

The refining margin, or crack, in Asia for producing 380-cst high sulphur fuel oil reached discounts of nearly $2 a barrel at the end of October, the narrowest in more than two years, LSEG data showed.

Discounts widened to more than $5.50 a ton this week as more supply replenishment from various regions, including the Middle East and the West, was expected, traders said.

Production at Iraq's Karbala refinery, which has a capacity of 140,000 barrels per day, also buoyed exports, industry sources said.

"Iraqi fuel oil exports are comfortably heading for a record this year following increased domestic production from the reopening of Karbala refinery," said Roslan Khasawneh, senior oil analyst at Kpler.

A Middle East refining source added that Iraqi exports going forward would also depend on whether the Karbala refinery runs its secondary units at full rates.

Iraq has been curbing crude exports to compensate for overproduction under OPEC+ quotas, processing more crude into products at its refineries, said LSEG Oil Research.

"We believe that in order to remain compliant due to its crude over-production, Iraq has upped its products output," said Emril Jamil, a senior oil analyst at LSEG.

He expects Iraqi fuel oil exports to remain above 2 million tons in November, while FGE's Jain said volumes may taper off from October highs in the next couple of months when Iraq starts winter stockpiling to meet heating demand.

(REUTERS)