The economics of shipping additional volumes of heavy crude from Iraq to compensate for a potential loss of Venezuela’s supply are just not there at present, Shafaq News reported on Friday, quoting Iraqi economist Nabil Al-Marsoumi.
Concerns in the heavy crude market are that the U.S. blockade of tankers carrying Venezuelan oil and heightened tensions in the Caribbean would reduce supply of the extra heavy crude.
In theory, the sour and heavy grades from the top producers in the Middle East could be substitutes for Venezuela’s crude.
But apparently, these would not come from Iraq.
“It’s not financially viable for Iraq to replace Venezuela in the US market,” Shafaq News quoted Al-Marsoumi as posting on Facebook post.
The Iraqi grade Basrah Heavy currently trades at about $4 per barrel below Basrah Medium. Transporting Bashrah Heavy to the United States would add $3.50 per barrel in shipping and insurance costs, according to the economist.
“The margin just doesn’t justify it,” Al-Marsoumi said.
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Moreover, Iraq’s oil production is limited by the OPEC+ agreement under which Baghdad is also compensating for previous overproduction by not raising output as much as it is entitled to.
Venezuela, for its part, may be forced to start shutting in oil production as it runs out of storage space amid the U.S. tanker blockade, Bloomberg reported earlier this week, citing unnamed sources.
Further disruption for Venezuela’s oil industry comes from the impact of the tanker blockade on its supply of Russian naphtha, which state oil firm PDVSA uses to dilute its heavy crude. At least one tanker with 32,000 metric tons of Russian naphtha was traveling to Venezuela last week, but it made a U-turn at the end of the week and is now en route to Europe with the cargo still on board, according to data from LSEG that Reuters cited earlier this week.
By Charles Kennedy for Oilprice.com
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