Just a week after it agreed to OPEC’s output-cut deal, Iraq is showing signs of going rogue, and instead of cutting crude exports—a logical byproduct of lowered production—it plans to increase oil sales in January.
According to an oil-loading schedule dated December 8 and viewed by The Wall Street Journal, Iraq’s state-owned oil marketing company SOMO plans to increase shipment of its Basra export grades to 3.53 million barrels per day in January, which would be a 7-percent increase from October volumes—an increase that is no small matter, as Basra grades sales account for around 85 percent of Iraqi crude exports.
While production and exports do not necessarily rise and fall at the same time due to storage and domestic consumption, Iraq’s consumption is only 15 percent of its oil output and relatively stable. In addition, the country’s total maximum storage capacity is just over 10 million barrels, a capacity insufficient to fully account for higher Basra exports.
According to the documents the WSJ has seen, Iraq’s planned sales to Indian and Chinese refiners in January would be 390,000 bpd higher than its December deliveries.
In contrast with Iraq, some other Middle Eastern producers are already adjusting their January exports to comply with the cuts. Abu Dhabi National Oil Company (ADNOC), for example, has said that it would reduce crude oil supplies next month in line with OPEC’s decision.
In OPEC’s November 30 deal, Iraq committed to cut production by 210,000 bpd effective January, from a reference production level of 4.561 million bpd. Iraq was one of the last holdouts of the OPEC deal in the months leading to the decision to curtail production: first disputing the sources that OPEC uses to estimate members’ output, then demanding exemption on the grounds that it needs oil revenues to fight Islamic State. Related: U.S. Shale Finally Sees Production Rise
Since the first comments on a possible OPEC deal emerged, analysts and investors have been wondering whether the cartel’s producers would honestly be willing to stick to their pledges instead of cheating, as they tend to do. In Iraq’s case, this is all the more true, considering that if oil prices do not rise substantially and significantly, the country won’t be able to offset lost production with higher revenues, if it sticks to its commitment to cut.
Over the weekend, Iraq’s Oil Minister Jabar al-Luaibi told Reuters in an interview that the country was committed to cut output to comply with the OPEC-non-OPEC deal to reduce oversupply and lift oil prices.
According to OPEC’s monthly report out today, Iraq’s output in November was 4.564 million bpd, according to secondary sources. Iraq’s self-reported figures to the cartel show production had hit 4.8 million bpd.
By Tsvetana Paraskova for Oilprice.com
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