TotalEnergies is offering millions of barrels of Iraq's Basrah Medium and Basrah Heavy crude to Asian buyers at steep discounts, with Basrah Heavy slashed by $0.80 per barrel, trading at an $8.15 discount to European benchmarks. This move addresses an inventory bottleneck, as Iraq has lagged in bringing its crude to market. TotalEnergies, which operates under service contracts in Iraq, acts as a spot seller to facilitate exports. This comes amid a bearish turn in the macro oil market, with the International Energy Agency (IEA) projecting a 1.1 million barrels per day decline in global oil demand by 2026. Brent crude has already fallen from $96 per barrel on June 1 to $73 by June 29.
The broader market context includes a surge in oil supply from OPEC+ nations and a recovery in shipping through the Strait of Hormuz. OPEC+ is expected to approve an output increase of roughly 188,000 barrels per day for August. Saudi Arabia's exports have returned to nearly 90% of pre-war levels, and the UAE has restored its oil exports to over 3.9 million barrels a day. The market is now in contango, where prompt delivery prices are lower than future contracts, signaling an oversupply. JPMorgan Chase & Co.'s Natasha Kaneva noted that "a wave of oil is about to enter the market" at a time when there isn't a need for it.
Citigroup analyst Francesco Martoccia recommends selling summer rallies, expecting Brent to trade in a $60 to $65 range by December, and potentially declining to $60 by year-end. This is based on rapidly reasserting fundamentals, softer Chinese buying, and less-than-expected inventory draws. Goldman Sachs and Morgan Stanley also foresee an oversupply as strait traffic recovers. While TotalEnergies has strong financial health with a 5.0% yield and a 54% payout ratio, a sustained oil downturn near $70 could compress margins and necessitate prioritizing dividend maintenance over growth.
