OPEC’s Rebel Makes Gesture of Atonement Ahead of New Oil Cuts
(Bloomberg) -- Saudi Arabia’s pressure on fellow OPEC nations to do a better job of cutting output appears to be paying off with the cartel’s main renegade, Iraq.
Yet the country still has a long way to go. At 4.67 million barrels a day, output is now back down to near the starting point for this year’s cutbacks after the country increased production for much of 2019. It will need much sharper reductions to implement the new accord starting in 2020, and some market-watchers are skeptical the country can achieve the target.
“Iraq will have to make material production cuts to meet its obligations to the OPEC+ agreement,” said Daniel Gerber, chief executive officer of Petro-Logistics, a Geneva-based consultant that has tracked OPEC exports for four decades. “It seems a stretch to imagine that they will voluntarily reduce production by the amount that is required.”
OPEC+, a coalition of 24 oil producers led by Saudi Arabia and Russia, resolved to cut production further to prevent a glut emerging next year amid fragile global demand and rising U.S. shale output. Their reduction over the past three years has supported crude prices and protected the group’s revenues.
But Iraq has been one of the weakest links since the OPEC+ alliance began in late 2016.
Baghdad always resented being pressured into restraining supplies as it rebuilds its oil industry and shattered economy after decades of conflict, sanctions and -- most recently -- the battle against Islamic State. Rather than reduce production as promised, Iraq has in fact increased it.
Pressed by the Saudis to improve compliance, Iraqi Oil Minister Thamir Ghadhban has often blamed the semi-autonomous Kurdish region in the north of the country, which is able to export crude independently of the central government. But increases have also come from the south, where the government is working with international companies like BP Plc and Russia’s Lukoil PJSC.
The December output data is still preliminary, and it’s unclear how far Iraq mended its ways. Exports appear to have been similar to November levels, though this estimate may change, according to analytics company Kpler. Data can easily be swayed depending on whether tankers load at the beginning or end of the month.
Yet the direction of travel for Iraq’s output seems like it could keep the Saudis satisfied for now.
“It appears that Iraq’s production has begun to drop toward the OPEC agreement,” said Devin Geoghegan, global director of petroleum intelligence at Genscape Inc. in Denver, Colorado.
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