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No sooner was the oil output freeze agreement by OPEC members announced than the first problem with it emerged. Namely, Iraq has questioned the way OPEC estimates the output of each member state.
The organization relies on two sets of data for these estimates: production figures supplied by each member, and data from external sources. Usually, the latter set of data present lower figures than members’ own calculations and are considered closer to real production.
Reuters quotes Iraq’s Oil Minister, Jabar Ali al-Luaibi, as saying that the data from secondary sources do not reflect the country’s actual production, which is higher. This discrepancy could practically rip the agreement apart even before it is ratified and enforced.
It is one thing to cap production at over 4.7 million bpd, which Al-Luaibi said was the most recent peak in daily output, and quite another to freeze it at 4.35 million bpd, which is the figure supplied by secondary sources for August. The figure Iraq itself supplied as average for August was yet another figure: 4.64 million bpd.
There is already enough skepticism about the deal. It is uncertain if it will hold until the November meeting of OPEC in Vienna. Even if it does, there is no guarantee all members will stay within their new quotas.
What’s more, Iraq could be just the first one to demand that its self-reported production rate be used as the basis for the new quotas. It may be followed by other members – it’s by no means the only OPEC member whose own figures are noticeably higher than the secondary sources data. This would ultimately render the freeze pointless – members will continue to increase their production to their self-reported levels. According to Zero Hedge, the combined difference between self-reported and secondary-source output figures for Iraq, Kuwait, the UAE and Venezuela is nearly a million barrels.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.