Iraq’s Oil Marketing Company (SOMO) has introduced a new look pricing mechanism used to compensate buyers for fluctuations in the density of its crude exports, which will commence with shipments in 2021, according to Reuters.

This decision comes after SOMO’s announcement to launch a third crude oil export-grade called Basra Medium in January, by splitting the existing Basra Light production into two grades.

 SOMO will compensate Basra Light and Basra Medium lifters by 40 cents per barrel for each full degree below the grades’ API gravity. Basra Heavy lifters will receive 60 cents per barrel for every degree the cargo is below its specific API gravity.

Iraq exported about 2.77 million barrels per day of Basra crude in October and it is the second-largest producer in the Organization of the Petroleum Exporting Countries.

API gravity is an indicator of an oil’s density. Lower gravity oil tends to produce more fuel oil after refining while higher gravity crudes tend to produce more higher-value products, for example, gasoline and diesel fuel when refined.