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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Is OPEC’s No.2 Finally Cutting Production?

Since OPEC started restricting oil production, Iraq—the cartel’s second-largest oil producer behind Saudi Arabia—has exceeded its output cap almost every month for more than two and a half years now. But now Iraq says it is ready to get onboard.

Iraq says it is now ready to reduce its crude oil production next month, its oil minister, Thamer Ghadhban, said as quoted by Reuters. “We are committed to the agreement to reduce production,” the official said in a statement. Ghadhban’s statement runs counter to evidence, which shows that Iraq has consistently failed to comply with its production cut obligations ever since the first production cut agreement was inked.

For Iraq, the OPEC+ deal coincided with the time when the country managed to drive most of the Islamic State militants out of its territory in late 2017 and oil production started to steadily grow as security improved.

While Baghdad has argued that it needs higher oil production to get more oil revenues—which account for 90 percent of its government proceeds— to rebuild a country damaged by decades of wars, OPEC’s second-biggest oil producer has been putting a spoke in the cartel’s wheel to have all members fully compliant with the cuts.

Iraq’s continuous non-compliance has also created another reason for tension within OPEC, on top of Iran balking at other members (Saudi Arabia and allies) over what Tehran sees as rival producers within the cartel stealing its market share while Iran is under U.S. sanctions.

Iraq’s non-compliance reached a new high in August when it is estimated to have pumped a record-high volume of oil at 4.88 million bpd, the latest monthly S&P Global Platts survey showed last week.

Iraq pumped 100,000 bpd more in August than in July, exceeding Iraq’s output quota of 4.512 million bpd by a whopping 370,000 bpd last month, the Platts survey showed.

The Reuters survey also found Iraq increasing its production in August and estimates by both Reuters and Platts surveys point to OPEC having boosted oil production in August for the first time this year, despite its continuous calls for ‘full compliance’ and ‘market stability.’ Iraq was one of the biggest contributors to OPEC’s production rise in August, alongside Nigeria, according to the surveys.   

OPEC’s official August production figures are due out on September 11, but the previous Monthly Oil Market Report with data for July showed that Iraq booked the biggest production increase, raising output by 32,000 bpd to 4.753 million bpd in July, while Saudi Arabia cut its July output by another 134,000 bpd to stay more than half a million barrels of oil per day below its OPEC quota. Related: Russia Considers Possibility Of $25 Oil Next Year

OPEC also lifted its oil exports in August, ship tracking data by Bloomberg showed, and Iraq’s crude oil exports increased to 3.603 million bpd last month from 3.566 million bpd in July, according to data from Iraq’s oil ministry.

“The recent increases in Iraqi production turned what was a sort of minor headache for OPEC into a fully-blown migraine,” Dave Ernsberger, who is global head of commodities pricing at S&P Global Platts, told CNBC last week.

These production increases in Iraq drew the attention of OPEC’s kingpin Saudi Arabia, again. The cartel’s de facto leader has called out rogue members over their sketchy compliance record several times since the OPEC+ alliance began cutting production in January 2017.

Iraq has been the most non-compliant OPEC producer.

Last week, Saudi Arabia’s Crown Prince Mohammed bin Salman picked up the phone and called Iraq’s Prime Minister Adil Abd Al-Mahdi to discuss the two countries’ “collaboration efforts with other parties in OPEC and outside it, to control on Oil Market and to prevent the deterioration of oil prices,” the office of the Iraqi PM said.

A few days later, Iraq’s Oil Minister Thamer Ghadhban said on Sunday that Iraq would be cutting its oil production starting in October and will stick to the OPEC production cuts. Over the past few months, Iraq has pumped above its quota because of higher domestic demand in the summer, Ghadhban said, adding that refineries would enter maintenance in October and domestic demand would drop.

Iraq has ambitions to significantly boost oil production over the next few years, despite the ongoing OPEC-wide cuts. It remains to be seen if Baghdad will heed Saudi Arabia’s calls for full compliance this time around and finally start sticking to its production quota.

By Tsvetana Paraskova for Oilprice.com

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