Iraq’s ambition to become a major oil producer once more, competing with Saudi Arabia, is hindered by a number of factors. In its latest weekly report, shipbroker Gibson said that “late last week, the Government of Iraq won an international arbitration award upholding Baghdad’s sovereignty over exports from oil produced in the Kurdistan autonomous region. Following the award, Ankara immediately instructed pipeline operator Botas to cease flows on the Kirkuk-Ceyhan pipeline resulting in approximately 400kbd of crude being forced into storage and now mostly shut in”.
According to Gibson, “whilst it is difficult to say how long production will remain curtailed, there is a clear incentive for the Kurdistan Regional Government (KRG) to come to a compromise with Baghdad. Immediately following the closure, Erbil dispatched a team to Baghdad to negotiate, although at the time of writing no such deal has been agreed. The central government is seeking to bring the marketing of Kirkuk crude exports under control of the state oil marketing company SOMO, but deep mistrust in how these revenues will be remitted back to the KRG have prevented such an arrangement from taking place”.
“For the tanker market, the loss of Kurdish exports via Ceyhan is a clear negative for Aframax and Suezmax tonnage trading in the Mediterranean, with exports split roughly 50/50 between the two sizes last year. That being said, the route was not a noteworthy generator of tonne mile demand with over 90% of exports being sold into the Mediterranean market (although some of those barrels transited across Israel for export via Eilat). In the short term, refinery turnarounds in Europe may limit the pressure to seek replacement barrels, however, if a near term resolution is not found, increased flows into the Mediterranean will need to be sourced from further afield. Kirkuk crude has an API of 34.2 and sulphur content of 2.24%, putting it in a relatively rare light sour category with the closest replacements tending to be located in the Middle East, although West African crude could feature given the current surplus in the region”, Gibson said.
The shipbroker added that ‘at this stage it is impossible to say how long a resolution might take, but with the diplomats from Turkey, Iraq, Kurdistan and the US all looking for a resolution, an eventual solution is likely to emerge. However, the longer the issue persists, the more dislocated the oil market will become, creating yet another level of inefficiency in an already inefficient market”.
Meanwhile, in the VLCC market, Gibson commented that “this week has proved to be a tough environment for VLCC, as the lack of enquiry put Charterers in a stronger position and rates have suffered as a result. Owners are still confident that we are close to the bottom and recovery could start next week, if we see a decent level of stems. Today we would expect 270 AG/China to fetch ws 80 and 280 AG/USG to go for at least ws 55. Suezmax enquiry in the AG has remained on the lower side this week, which has pushed down rates. Market rates for a standard Basrah/West stand at 140,000mt x ws 70. For cargoes heading East, there are a few ships willing and Charterers will be pushing for 130,000mt x ws 150. Another positive week for Aframax Owners in the AG. Rates looked like they had topped as the Med has corrected downwards, however, an undercurrent of inquiry paired with thin lists has seen rates remain steady, with potential in some places to push up”, the shipbroker concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide