European oil firms snap up Kirkuk sale against American competition

LONDON/BAGHDAD (Reuters) – European oil firms yesterday made a clean sweep of Iraq’s tender to sell 6 million barrels of Kirkuk crude, the country’s first northern oil sales in nearly a year, traders and Iraqi officials said. Thwarting expectation that much of the oil would be shipped to the United States, recently a keen buyer of high-sulfur crude amid concerns over Venezuelan supplies, it appeared all of the Kirkuk could remain in Europe, market sources said. Winning bids were said to have been around Dated Brent minus $4 fob Ceyhan, with at least one heard as much as 30 cents stronger than that, they added. Spain’s Repsol, Italy’s Agip, Greece’s Hellenic Petroleum, Turkey’s Tupras and oil majors Shell and Total won the tender, Iraq’s first to sell Kirkuk crude pumped after the US led invasion. Lifting is due March 12-19. If this tender is followed swiftly by a second, as many dealers predict, Iraq could ship more than 2 million barrels per day (bpd) this month, matching prewar export rates, traders say. Its two Gulf ports should be shipping more than 1.6 million bpd as disruptive weather conditions subside. Repsol, Total and Tupras repeated their winning performance from last June, when SOMO auctioned off 8 million barrels of crude that had been pumped before the US invasion. That was the last batch of Kirkuk sales. In an unexpected turn, at least half the crude was due to stay in the Mediterranean with Hellenic, Tupras and Agip, which have no refineries outside the region. Oil traders had expected the bulk of the oil to leave the region because saturated Mediterranean markets would be unable to absorb such large volumes of prompt crude. Urals under further pressure The local sales are likely to put competing sour crude Urals under renewed pressure, although the grade has already slumped 60-80 cents since Iraq resumed pumping on its northern pipeline nearly three weeks ago. At least one million barrels will move into Repsol’s northern Spain refining system, but the precise destination of the other 2 million barrels with Total and Shell was uncertain. Shipping sources said both cargoes would remain in Europe given restrictions on the tankers, although this could not be confirmed. Oil traders said it appeared Shell was poised to take its cargo into Rotterdam, where prices for competing Urals shipped from the Baltic Sea are as much as $1 more expensive than Mediterranean Urals, creating an open sour arbitrage. Total’s destination was less clear, although there were murmurs that the cargo could move into the major’s system in Lavera. The United States had appeared a good option a week ago, as domestic sour grades there have rebounded in recent weeks and freight rates have subsided, opening an arbitrage window for sour. Urals was sold into the US Gulf for the first time in months last week. Among the traders that bid but did not win were US majors ExxonMobil and ChevronTexaco, European major BP – which had put a 2-million-barrel VLCC on subjects for the loading – and traders Vitol and Taurus, dealers said. Traders said the winning bids appeared to be the equivalent of Dated Brent -$3 cif Augusta, flat to competing Russian Urals, which some traders say has a higher value. But they note that Kirkuk may have been partly inflated by a desire to appear keen. «People want to show Baghdad they are keen to lift Kirkuk in future so they would have made higher bids,» one dealer said. Attention now turns to the future of northern supplies, as dealers say SOMO is unlikely to rush into long-term contracts yet, given the uncertain nature of supply along the sabotage-ridden pipeline. US officials say there were no successful attacks on the line in February amid beefed-up security, a major improvement from late last year, when there were several attacks per week. But until the pipeline establishes a stable track record of secure operations, many dealers expect continued sporadic sales from storage at Ceyhan. Pumping along the pipeline has been running as high as 500,000 barrels per day (bpd) in the past few weeks, but was slowed to around 350,000 bpd in the past few days as storage tanks neared full capacity. Yesterday, one source said pumping had ceased entirely after the nearly 10 million barrels of storage capacity had been filled, but this could not be confirmed. Baghdad is likely to resume pumping as crude is lifted from the terminal, which should happen as soon as tomorrow, when Repsol’s tanker is due to berth, traders say.

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