ADNOC is buying tens of millions of barrels of deeply discounted Iraqi crude, processing much of it at home and freeing more of its own barrels for export through a route that avoids the Strait of Hormuz.
The UAE producer agreed to buy 32 million barrels of Iraqi crude for August at discounts of $24.90 to $27 per barrel and another 40 million barrels for September, according to sources cited by Reuters. September purchases included 10 million barrels discounted by $18 and another 30 million barrels discounted by $25.
Actual liftings have been smaller because Iraq is still struggling to get crude out.
ADNOC was allocated 32 million barrels for August but lifted about 20 million barrels after export constraints limited availability, one source said. It has lifted another 14 million barrels so far in September.
Iraq exported just 1.374 million bpd in July before recovering to 2.354 million bpd in August, according to Kpler. September exports are running around 2 million bpd.
Iran last month granted some Iraqi tankers permission to pass through Hormuz following requests from Baghdad. Iraq has little shipping capacity of its own and historically moved most of its crude through the Persian Gulf, leaving its barrels particularly exposed to the disruption.
Those constraints are creating some extraordinary discounts.
ADNOC has considerably better logistics. The UAE can move its own crude through the pipeline to Fujairah, where tankers load outside Hormuz. UAE crude exports have risen from 2.871 million bpd in July to 3.236 million bpd so far in September.
ADNOC plans to run much of the Iraqi crude through its Ruwais refinery and sell more UAE crude into the international market, according to one Reuters source.
Other buyers have spotted the bargain. PetroChina, Zhenhua Oil, TotalEnergies, Vitol, Trafigura, Mercuria and Cathay Petroleum have also purchased Iraqi barrels offered at steep discounts.
Iraq wants to raise production from roughly 4 million bpd before the war to between 8 million and 10 million bpd within six years.
By Julianne Geiger for Oilprice.com
