June 16 (Reuters) -
* Iraq is stepping up compliance with the Organization of the Petroleum Exporting Countries and allies (OPEC+) deal, with July Basrah crude exports to fall below 2.5 million barrels per day (mbpd), possibly even as low as 2.2 mbpd, consultancy Energy Aspects said in a note.
* “Within Asia, South Korean refiners have been hardest hit by the cuts to July allocations. Even China and India, the two largest lifters of Iraqi crude at around 1 mbpd each, appear to have been cut by 25–75%,” it said.
* This comes after Saudi Aramco, the world’s largest oil exporter, reduced the volume of July-loading crude that it will supply to at least five buyers in Asia, sources said on Monday.
* Energy Aspects said these shortfalls are likely to force Asian buyers to source crude from the Atlantic Basin, which should support U.S. and European crudes to move east.
* “However, with Brent at $40, weakened Chinese domestic refining margins could continue to push teapots to resell some more crude cargoes,” it added.
* The consultancy said all the other supply-led bullish factors will continue to support timespreads right now, particularly for sour crudes, which will show up most clearly in the Dubai contract and tightening of sweet-sour spreads.
* Energy Aspects said refiners can buy spot barrels to substitute the cutbacks in OPEC+ term barrels, which has a disproportionately bullish impact on benchmark prices.
* The impact of OPEC’s compliance on flat price will depend on a number of factors including the continued recovery in global economic activity, the value of the dollar and the potential for a second wave of COVID-19 in the autumn, it added.
* Earlier this month, OPEC, Russia and allies agreed to extend record oil production cuts until the end of July. (Reporting by Sumita Layek in Bengaluru; editing by Jonathan Oatis)