As Venezuelan oil exports near collapse and supply growth idles elsewhere
in Latin America, a new wave of heavy sour crude from Iraq has begun to flow
into US Gulf Coast refineries, a trend analysts expect to multiply, at least
in the near term.

“Sometimes it’s a buyers’ market where there’s an excess of heavy sour
… currently it’s a sellers’ market [for Iraq] with the rapid decline of
Venezuelan heavy barrels and stagnant production out of Mexico, Brazil and
Colombia,” said John Auers, executive vice president at refinery consultants
Turner, Mason & Co..

Iraq, which had long blended its heavier sour crude with medium grades,
exported 301,600 b/d of heavy crude to the US Gulf Coast in March, according
to the latest US Energy Information Administration data. It was the highest
average since January 2017, when about 341,650 b/d of Iraqi heavy sour crude
was shipped to the Gulf Coast, an all-time high, according to the EIA data.

Through May, roughly 35.5 million barrels of Basrah Heavy crude had been
imported by US Gulf Coast refiners, up about 1 million barrels compared with
the first five months of 2017, but more than double imports in the same time
period in 2016, when about 16.6 million barrels of the heavy Iraqi crude was
imported, according to the latest US Customs and Border Protection data.

The US did not begin regularly importing Iraq heavy crude until September
2015, but Iraq has become one of the US’ top sources of heavy sour crude,
behind Canada, Mexico, Colombia and Venezuela, according to EIA data.

Canada remains, by far, the largest source of heavy sour crude. The US
imported 2.42 million b/d of Canadian heavy sour crude in March, more than all
other countries combined, according to EIA. But the import gap between Iraq
and heavy crudes from top Latin American countries has shrunk this year and
Basrah Heavy is accounting for a growing percentage of Gulf Coast imports.

Nearly 15% of all heavy sour crude imported on the US Gulf Coast in March
came from Iraq, compared with about 6% in March 2017. In the first three
months of 2018, the US imported an average of about 257,400 b/d of Basrah
Heavy crude, accounting for 13% of all US Gulf Coast heavy crude imports.

The growth of Iraqi crude exports to the US is driven, at least partly,
by the decline in Venezuelan oil production and exports, according to Auers.
US Gulf Coast imports of Venezuelan heavy sour crude have averaged roughly
249,100 b/d so far this year, down from nearly 529,760 b/d in the same period
in 2017 and 658,600 b/d in 2016.


Jacques Rousseau, managing director, global oil and gas with ClearView
Energy Partners, believes the shift by Gulf Coast refiners to Basrah Heavy is
largely due to the ongoing agreement between OPEC and non-OPEC producers to
cut their output.

“This increase appears to be offsetting lower imports from other OPEC
countries that have removed oil from the market,” Rousseau said, adding that
Iraq was likely offsetting potential imports of heavy sour crudes from Kuwait
and Saudi Arabia.

Iraq, which has one of the lowest compliance rates to production cuts of
all OPEC countries, saw its oil output average 4.47 million b/d in May, a
50,000 b/d production increase from April, according to an S&P Global Platts
survey released Friday. Iraq remained 120,000 b/d over its allocation,
according to the survey.

Saudi Arabia’s output, meanwhile, averaged 10.01 million b/d in May, up
60,000 b/d from April and 50,000 b/d below its allocation, according to the

US Gulf Coast imports of Saudi heavy sour peaked at 290,250 b/d in
February 2017 and have since fallen to about 8,300 b/d in March, according to
EIA. US imports of all Saudi crude averaged 748,500 b/d in March, down from
more than 1.17 million b/d in March 2017.

Kuwait has not sent a barrel of heavy sour crude to the US Gulf Coast
since January 2017, according to EIA data.

Meanwhile, Iraq currently exports about 800,000 b/d to 850,000 b/d of
Basrah Heavy, about 25% of which are southern exports. Exports are forecast to
climb to about 1 million b/d by the end of 2018 when additional output from
fields in southern Iraq come online. Exports are forecast to increase to 1.2
million b/d by mid-2019, where they will likely remain until a long-delayed
water injection project is completed, possibly by 2022.


Analysts said this week that they expect the growth of Iraq imports to
the US Gulf Coast to be a short-term phenomenon, partly due to the
International Maritime Organization’s 0.5% global sulfur cap for fuel oil
in 2020, which could depress demand for heavy crude.

“Iraq’s crude grades offer a good complement to the increasingly high API
crude slate because they are middle distillate rich,” said Michael Cohen, head
of energy commodities research at Barclays. “That said, they are quite high in

And while there is limited global demand for heavy crude to compete with
the US Gulf Coast, there are no substantial plans to increase heavy crude
refining capacity there.

Auers estimated that Gulf Coast refiners could currently run as much as
2.5 million b/d of heavy crude with a gravity of less than 25. But that will
only go up “marginally” before 2020 and there are no clear incentives for
growth, he added.

–Brian Scheid,

–Faleh Al-Khayat,

–Edited by Keiron Greenhalgh,

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