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When it comes to pricing its crude, Iraq’s tried and tested approach has long been to closely follow whatever Saudi Arabia does. Next month, Baghdad is deviating from that path — posing an intriguing question as to why — by announcing sharp cuts, writes Bloomberg oil strategist Julian Lee.
Iraq slashed the price of its benchmark Basrah Light crude relative to the comparable Saudi Medium grade for U.S. buyers next month. That almost never happens: the competing Middle Eastern grades normally follow each other pretty closely, but the discount for Iraq barrels lifted next month will be the widest it’s been since the April 2020 market crash.
So what’s afoot? It could be that Iraq’s price setters have had more time than their Saudi counterparts to assess the impact of Hurricane Ida on U.S. production and refining systems. and they’ve come to the conclusion that the deeper cut was needed to service that market’s requirements.
But vessel tracking data monitored by Bloomberg show that 82% of Iraq’s crude exports to the U.S. so far this year have gone to the west coast, a region untouched by the storm.
So perhaps the widening price gap between the two grades reflects an attempt to rectify a slump in U.S. buying of late. The tanker tracking data show that shipments slumped in June and July, picking up briefly last month before falling again in the first part of September.
Or maybe it’s a combination of these things, given that Iraq also cut its official September price when Saudi Arabia imposed a small increase. Either way, this does not look like the start of an oil-price war just yet, and the most eye-catching changes have been for deliveries to the U.S. – now a small market for both producers – rather than to other regions.
