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OPEC is exceeding its self-imposed limits of 30 million barrels per day (mb/d), with June output reaching 31.28 mb/d, according to a survey by Platts, an energy reporting service.
It was the fourth straight monthly increase in oil production since February, and was led by increased drilling in both Iraq and in Saudi Arabia, OPEC’s leading producer and the most influential of the group’s 12 members.
Margaret McQuaile, a senior correspondent for Platts, said output in June was the highest in a single month since August 2012, when a similar survey by the news agency found it was producing 31.54 mb/d. But at that time, she noted, the cartel’s production was declining.
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Now, McQuaile said, OPEC’s production appears to be steadily rising at a time when there’s a chance that Iran’s output may double, when and if it is freed of export restrictions imposed by Western sanctions.
For several years OPEC has an official but not mandatory output cap on 30 mb/d, and at the group’s semi-annual meeting at its Vienna headquarters on Nov. 27, 2014, Saudi Arabia persuaded the cartel to keep this ceiling even in the face of falling oil prices due to rising oil production from shale and other unconventional sources, mostly in North America.
A month later, Saudi Oil Minister Ali al-Naimi explained that the strategy was meant to help OPEC regain market share from companies producing American oil by keeping oil prices so low and make shale production unprofitable.
This wasn’t just talk. Since OPEC’s recent production surge began in February, production from American shale hasn’t ebbed, yet Saudi Arabia says it will keep production high anyway to keep its oil competitively priced, particularly for its energy-hungry customers in Asia. In June, Platts said, the Saudis increased output to an average of 10.35 mb/d.
Another overproducer in OPEC cited by Platts is Iraq, which produced an average of more than 3 mb/d, an increase of almost 330,000 barrels per day. The agency attributed this rise to two factors: the opening of a new storage and pumping system at the FAO terminal in the Persian Gulf port of Basra.
Also in Iraq, the semiautonomous government of Iraqi Kurdistan says it increased its sale of its own crude oil in June in order to cover debts incurred by budget cuts by Iraq’s central government in Baghdad.
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And then there’s Iran. Mansour Moazami, Iran’s deputy oil minister for planning and supervision, told The Wall Street Journal on July 5 that the OPEC member is ready and eager to nearly double its output if it and six world powers agree on a regimen to monitor Iran’s nuclear program and lift sanctions that have limited Iraq’s oil exports.
Iran is now exporting about 1.2 mb/d, Moazami said, but that figure would reach 2.3 million barrels if sanctions are lifted. The question is whether other OPEC members would reduce their production to accommodate the new output, especially given the longstanding religious and political rivalry between Shi’a Iran and Sunni Saudi Arabia.
By Andy Tully Of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com