SINGAPORE/BEIJING Iraq is selling more crude oil to its biggest customer, China's Unipec, people familiar with the matter say, digging a deeper foothold in the global supply market just before production cuts agreed with OPEC and other producers are scheduled to kick in.
With new deals with Indian and U.S. refiners also coming on stream, the expanded contract with the trading arm of Asia's largest refiner Sinopec (600028.SS) means Baghdad will have to reduce supply to other clients to honor its commitment to cut output by 210,000 barrels per day (bpd) from 2017.
Three people with knowledge of the matter said the Unipec contract was signed just before the Organization of the Petroleum Exporting Countries (OPEC), of which Iraq is a member, agreed with other producers led by Russia to cut output by as much as 1.8 million bpd in an effort to reduce a global fuel supply overhang and prop up prices.
Speaking on condition of anonymity because they weren't authorized to speak to media, the people said Iraq's Oil Marketing Company (SOMO) has boosted Basra crude forward export sales to Unipec by 3 percent to a total of 40 million-60 million barrels each quarter - 435,000-652,000 bpd - for 2017.
"If Iraq increases its sales to China while others have to cut back or just hold their volumes steady, Iraq will inevitably gain market share in what is arguably the most important oil market," said a trader who specializes in sending crude to China but is not allowed to speak publicly.
Iraq is OPEC's second-biggest producer behind Saudi Arabia and now ranks third among crude suppliers to China - after Russia and Saudi Arabia - having recorded a 15 percent year-on-year jump to about 723,000 bpd between January and October. [O/CHINA1]
As part of the expanded Chinese deal, one of the people said, Unipec is expected to load 2 million barrels of Basra Heavy crude every quarter.
"Basra is now an established grade with stable quality and reliable supplies," said another trader, who buys Iraqi crude but isn't authorized to speak to the media.
Unipec said it doesn't comment on specific deals.
SOMO will also supply Basra Heavy crude under new term contracts to Exxon Mobil (XOM.N), Chevron Corp (CVX.N) and Indian refiner Essar Oil ESRO.CL for 2017, according to a person close to the matter and a preliminary January loading schedule for the oil.
The contracts contribute to an expected jump in Basra exports to 3.53 million bpd in January 2017, the highest volume since June, the loading schedule showed.
SOMO did not reply to an e-mail from Reuters seeking comment. Exxon and Chevron said they don't comment on operational matters, and Essar declined to comment.
In India, crude imports from Iraq rose 24 percent in the first 10 months this year to 784,000 bpd, making Iraq the second-largest crude supplier after Saudi Arabia.
Iraqi crude exports to the United States have more than doubled in the first nine months of 2016 from the same period a year ago to nearly 350,000 bpd as Venezuelan supplies declined, data from the Energy Information Administration showed.
(Reporting by Florence Tan in SINGAPORE, Chen Aizhu in BEIJING and Rania El-Gamal in DUBAI; Additional reporting by Nidhi Verma and Sudarshan Varadhan in NEW DELHI; Editing by Henning Gloystein and Kenneth Maxwell)