* Iraq ahead of Saudi as India’s largest oil supplier in Q2
* Strong India demand for heavy crude boosts Iraq’s market share
* Iraqi oil also being used for bitumen to build roads in India
By Nidhi Verma
NEW DELHI, July 19 (Reuters) - Iraq overtook Saudi Arabia for the first time to become India’s top oil supplier in the June quarter, helped by sales of discounted heavy crude that refiners have also been using to make bitumen to build roads in the world’s No.3 oil consumer.
State oil firm Saudi Aramco (IPO-ARMO.SE) has traditionally been the main supplier to India and Riyadh could face pressure to deepen crude price cuts to regain market share, particularly ahead of the planned listing of Saudi Aramco.
Iraqi oil accounted for about a fifth of Indian imports in the second quarter, up from 16 percent a year ago, according to trade sources and ship-tracking data compiled by Thomson Reuters Supply Chain & Commodities Research.
The Saudi market share in India over the period fell to about 18 percent from a fifth last year, marking the first time Iraq has overtaken Saudi Arabia in an entire quarter.
Facing inroads into its market shares, Saudi Aramco this month slashed the August official selling price (OSP) of its benchmark light crude grade to Asia by the most in nine months but analysts warned it may need to make deeper cuts.
Saudi Aramco had been raising prices over the previous four months, leading some to believe that it was preparing to end an aggressive attempt to expand market share.
“If Aramco wants to raise market share then it should strike long-term deals or offer crude at more attractive price than competitors,” said Ehsaan Ul Haq, a senior analyst at U.K.-based consultancy KBC Energy.
OPEC’s top producer has lost ground in a number of major global markets including to Russia in China, and is also facing a further threat from Iran, which is ramping up exports after Western sanctions were removed.
The drop in market share comes as the Kingdom prepares to list Saudi Aramco and other assets to raise tens of billions of dollars to help bridge a budget shortfall due to weak oil prices.
Iraq’s Basra Heavy crude grade has seen growing demand from Indian refiners since it was introduced last year.
Many Indian refiners have the capability to process such heavier grades and it is also sold at a steep discount.
In addition, Basra Heavy is also good for producing bitumen to be used for road construction. India aims to build about 40 kilometres (25 miles)of roads every day this fiscal year under Prime Minister Narendra Modi’s push to improve infrastructure.
“When you compare it with other heavy rival grades it comes first in ranking,” said B. K. Namdeo, head of refineries at Hindustan Petroleum Corp, referring to Basra Heavy’s versatility and its price competitiveness.
Demand for Basra, however, is likely to temporarily soften during the current monsoon season in India, when road construction slows and Namdeo said refineries could switch to competing grades like Murban and Arab Light.
In the April-June quarter, India’s oil imports from Iraq rose by about 34 percent to 847,000 barrels per day (bpd), while those from Saudi Arabia fell to 768,000 bpd, the data showed.
But in June alone, India’s oil imports from Iraq declined by about 13 percent from a year ago as Saudi Arabia regained its top spot in the month.
Officials at Indian refineries said, however, loading problems had contributed to lower Iraqi oil imports and demand is expected to return after the monsoon ends in September.
Reporting by Nidhi Verma; Editing by Ed Davies