Iraq plans major change to oil pricing for Asia

SINGAPORE/DUBAI: Iraq has informed its customers that it plans to switch its price benchmark for Basra crude in Asia to DME Oman futures from January, dropping the average of Platts´ Oman-Dubai quotes, in a major shift in the way it prices its oil.

The proposal by state-oil marketer SOMO would mark a significant change by OPEC´s second-largest producer away from fellow members Saudi Arabia, Kuwait and Iran, which have been using price assessments from global agency S&P Global Platts as their benchmark for decades.

It throws down the gauntlet on setting prices for more than 12 million barrels per day of Middle East crude in Asia, challenging the role of the world´s top exporter Saudi Arabia. "In an effort to realize the intrinsic value of our crude exports to Asia as to be in alignment with the recent market perception, we are contemplating a change of the current pricing formula for the Asian market," SOMO said in a letter dated Aug. 20 and sent to its customers, according to a copy seen by Reuters on Monday.

It asked customers for opinions on the plan by Aug. 31. SOMO and the Dubai Mercantile Exchange (DME) did not immediately respond to Reuters requests for comment. Iraq has been reforming its oil sector - including launching crude sales through auctions on DME to achieve higher prices and setting up trading and shipping joint ventures to understand market dynamics - in what is seen as a drive to gain influence and bring in more revenue as the country seeks to rebuild its economy.

"DME has shown good practice and better transparency than Platts, they also have an auction system," one source familiar with the matter said. The move also appears to reflect SOMO´s aim to lead a change in crude pricing rather than following Saudi Arabia, OPEC´s biggest producer whose crude official selling prices (OSPs) set the trend for other major Middle East producers. Iraqi crude grades are not used in any of the Middle East price benchmarks.