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DUBAI Iraqi fuel oil exports have soared since January despite a reduction in the country's crude production in line with OPEC supply cuts, industry sources said, in what could be a way to boost output of refined products and maintain oil revenues.

Iraq on average exported between 80,000 and 160,000 tonnes of fuel oil per month in 2016, data collected by Thomson Reuters Oil Research showed.

But volumes sold to Asia have jumped this year, with Iraq's global exports of fuel oil reaching more than 500,000 tonnes in March alone, according to Reuters data.

The soaring exports of high-quality straight-run fuel oil (SRFO) are an attempt to support revenues amid the OPEC cuts in which Iraq reluctantly agreed to participate, saying it would reduce crude output by 210,000 barrels per day (bpd).

Iraq has processed more crude through its refineries, turning it into fuel oil for export, five industry sources with knowledge of the matter said.

"The Iraqis have been processing more crude internally than exporting it, hence there are more fuel oil exports," said one Middle East-based industry source, speaking on condition of anonymity as he was not authorized to talk to the media.

A manager at an Iraqi-headquartered energy trading company said: "The Iraqis have been working on optimizing fuel oil exports ... in a move to compensate for the OPEC (crude) cuts."

Other Middle East trade sources said Iraq had been blending the high-quality fuel oil it produces with either crude or naphtha before exporting it.

The effect has been felt as far as Singapore, Asia's main oil-trading and storage hub. Trade data compiled by Reuters shows imports of Iraqi fuel oil at 0.94 million tonnes in the first quarter of 2017, nearly double the 0.48 million tonnes imported during the whole of 2016.

One characteristic of high-quality fuel oil is that it can be used as crude which, according to traders, is what is happening with Iraqs supplies.

"This stuff (the fuel oil), it's going straight into refineries," said one Singapore-based fuel oil trader, adding that Shell's 500,000-bpd Pulau Bukom refinery in Singapore had taken several cargoes of Iraqi fuel oil.

The fuel oil, like crude, is then refined into other products such as jet fuel, gasoline or diesel. Shell declined to comment on the details of its commercial agreements.

Traders said some of the high-grade fuel oil had also been shipped to the United States.

Fuel oil is a byproduct of crude oil refining. High-quality variants such as SRFO can be further refined into higher-value gasoline and diesel, while lower-quality fuel oils are typically used in large marine vessels and power plants.

Iraq's bulging fuel oil exports have contributed to a glut. In Singapore, premiums on fuel oil prices came under pressure in the first quarter as inventories hit a near eight-month high. Likewise, fuel oil inventories in the Amsterdam-Rotterdam-Antwerp hub soared to their highest since records began in 1995 in the first quarter, as fewer shipments were sent to Singapore's already burgeoning storage tanks.

(Additional reporting by Rania El Gamal; Editing by Henning Gloystein and Dale Hudson)

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Iraq's fuel oil exports soar despite OPEC supply cut - Reuters