Iraq proposes to split Basra Light crude into two grades

By Florence Tan and Osamu Tsukimori

SINGAPORE/TOKYO (Reuters) - Iraq's State Oil Marketing Organization (SOMO) has proposed splitting its Basra Light crude supply into two grades and has requested feedback from buyers in Asia, trade sources said on Monday.

The second largest OPEC producer plans to offer two grades of crude - light and heavy - for exports from its southern terminals, the sources said, citing an e-mail from SOMO.

The heavier grade with an API gravity of 24-25 degrees will be loaded from its Single Point Mooring (SPM) terminals, while the light grade will have an API gravity of 29 degrees, one source said. SOMO will set monthly official selling prices (OSPs) for each grade, he said.

Buyers are to respond by the end of the week, the source said. SOMO could not be immediately reached for comment.

Iraq has been exporting heavier oil from its SPMs in southern Iraq, with an API gravity of 26-27 degrees, since the second quarter due to a rise in new production from fields such as West Qurna operated by Lukoil, traders said.

The offer of the heavy grade surprised some buyers and raised questions on how it will be sold.

"There are many ambiguities in the letter, and we need to conduct a hearing with SOMO to see what they really have in mind," a Japanese crude trader said.

"It's hard to say at this point how this would impact our purchases."

The statement implied that the split in Iraqi supply could start from around 2015, said the Japanese crude trader. Asia typically imports more than half of Iraq's Basra Light, with China and India the main buyers.

The new heavy grade will resemble Latin American crude and is even heavier than Saudi Arab Heavy, which has an API of about 27 degrees, the first source said.

On the API scale, the heavier the crude, the lower the number. The measurement helps refiners to determine if a particular crude grade can produce more heavy products such as fuel oil or more light products such as diesel and jet fuel.

Chinese and Indian buyers such as Sinopec and Reliance Industries Ltd may find the Iraqi heavy grade more palatable given their ability to handle such grades, traders said.

"While SOMO is paying some compensation depending on what API you get, for some refiners with simple plants it's not enough," a London-based trader said.

"On the flip side, the most flexible plants in Asia are at times making a killing out of it."

(Additional reporting by David Sheppard in London; Editing by Himani Sarkar and Tom Hogue)