• 22 hours PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 1 day Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 1 day Syrian Rebels Relinquish Control Of Major Gas Field
  • 1 day Schlumberger Warns Of Moderating Investment In North America
  • 1 day Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 1 day Energy Regulators Look To Guard Grid From Cyberattacks
  • 1 day Mexico Says OPEC Has Not Approached It For Deal Extension
  • 1 day New Video Game Targets Oil Infrastructure
  • 1 day Shell Restarts Bonny Light Exports
  • 1 day Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 2 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 2 days British Utility Companies Brace For Major Reforms
  • 2 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 2 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 2 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 2 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 2 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 2 days Rosneft Signs $400M Deal With Kurdistan
  • 2 days Kinder Morgan Warns About Trans Mountain Delays
  • 3 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 3 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 3 days Russia, Saudis Team Up To Boost Fracking Tech
  • 3 days Conflicting News Spurs Doubt On Aramco IPO
  • 3 days Exxon Starts Production At New Refinery In Texas
  • 3 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 4 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 4 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 4 days China To Take 5% Of Rosneft’s Output In New Deal
  • 4 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 4 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 4 days VW Fails To Secure Critical Commodity For EVs
  • 4 days Enbridge Pipeline Expansion Finally Approved
  • 4 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 4 days OPEC Oil Deal Compliance Falls To 86%
  • 5 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 5 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 5 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 5 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 5 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 5 days Aramco Says No Plans To Shelve IPO
Alt Text

OPEC Favors 9-Month Extension Of Production Cut Agreement

According to Reuters sources, OPEC…

Alt Text

IEA: Oil Prices To Hit A Ceiling In 2018

Global oil markets appear to…

Alt Text

Oil Prices Poised To Rise In Early 2018

A consistent fall in comparative…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Iraq Could Make Or Break The OPEC Deal

Oil and Pipeline

The markets are betting that the OPEC extension is all but guaranteed after Saudi Arabia and Russia announced their intention to support a nine-month extension. Saudi energy minister Khalid al-Falih tried to put to rest any possibility of dissention. “We think we have everybody on board,” al-Falih said on Bloomberg TV. “Everybody I’ve talked to indicated that nine months was a wise decision.”

Rumors have surfaced that OPEC might even be considering deeper cuts, perhaps on the order of 2.5 million barrels per day (mb/d), which is twice as much as the current reductions. Because inventories have declined slowly, there is a greater recognition that more aggressive action might be needed to bring the oil market back into balance.

But even as oil bulls – and U.S. shale drillers, no doubt – salivate at the possibility of steeper cuts from OPEC, there is at least one country that could derail those efforts: Iraq. OPEC’s second largest producer was one of the last holdouts in the lead up to the original six-month deal. Iraqi officials hesitated at cooperating with OPEC to reduce output because it argued that its multi-year war with the Islamic State should exempt it from any production limits, just as security problems in Nigeria and Libya were cited as justification for allowing an exemption for those two countries.

In addition, Iraq disputed the data OPEC used in calculating the production limits, which it said underestimated Iraq’s actual production levels. Iraqi officials argued they were being asked to cut too deep based on disputed data. Related: Saudi Finance Minister: “I Wouldn't Care If The Oil Price Is Zero"

Even though were able to move past those disagreements, Iraq became a straggler when it came time for implementation. In the first quarter, Iraq produced 80,000 bpd more than the agreed upon production limit of 4.351, according to Reuters. As of April, Iraq was still above its cap by some 20,000 bpd, based on OPEC’s secondary sources data. Moreover, because the agreement is a six-month average, even if Iraq brought its output down to the target level for May and June, that would not mean it will have achieved compliance – Iraq would have to cut significantly below that level in order to bring its six-month average down sufficiently. So, it is safe to say Iraq will not meet its commitment.

But that issue is rather minor compared to the task at hand for al-Falih in trying to keep Iraq on board going forward. The reason is that Iraq has new production capacity set to come online in the third and fourth quarter of 2017. The bulk of Iraq’s production comes from its southern oil fields in and around Basra, where several major international companies operate, including BP, Royal Dutch Shell, ExxonMobil, Lukoil and CNPC. Production from these southern oil fields could actually increase as companies' complete maintenance and bring some new projects online. "We achieved this great achievement of 4 million barrels per day ... middle of 2016, and now we have climbed up and we are reaching about 5 million barrels per day beginning of second half of this year," Iraq’s oil minister Jabbar Al-Luaibi said in March at the CERAWeek Conference in Houston.

“Leaving that productive capacity idle will come with an opportunity cost that Iraq may prove reluctant to bear,” Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas SA, told Bloomberg.

Reports surfaced this week that Iraq was insisting that it would not agree to anything more than a six-month extension, resisting Saudi Arabia’s pleas for an extension through the first quarter of 2018. However, Saudi energy minister al-Falih flew to Baghdad to do some arm-twisting, and as of May 22, he seems to have convinced his Iraqi counterpart to sign on. On the eve of the OPEC summit, there now appears to be few barriers to an official endorsement of a nine-month extension. Related: Saudi Arabia Signs $50 Billion Worth Of Oil Deals With The U.S.

But that does not mean that Iraq will comply. So far it has fallen short of 100 percent compliance, a fact that Saudi Arabia is willing to overlook in order to keep the deal from falling apart. Indeed, Saudi Arabia has made up for Iraq’s foot-dragging, cutting deeper than required. “This is OPEC’s problem: There is no punishment mechanism,” independent oil analyst Anas Alhajji told Bloomberg. “A deal is one thing, implementation is another.” Recent data shows that even as Iraq appears ready to sign on to a nine-month extension, its exports are on the verge of setting a record for the month of May.

Moreover, the Iraqi oil minister has long felt that it received the short end of the stick form the original agreement in November. Fellow OPEC members Nigeria and Libya were given exemptions and Iran was allowed to increase production. Iraq, meanwhile, was forced to make the second largest cut. This, plus the oil minister’s past comments about ramping up production this year, should make oil watchers skeptical about Iraq’s willingness to keep production in line with the agreement for the next nine months.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:

Back to homepage

Leave a comment
  • Naomi on May 24 2017 said:
    Whatever Saudi Arabia pumps should be the limit for all OPEC. Saudis pump 10 million bbl/day. If Saudis cut to 4 million bbl/day then Iraq should cut to 4 million bbl/day.
  • Mark on May 24 2017 said:
    They will accept it one way or another. Either they accept and oil goes higher, and they benefit, or they reject and oil goes significantly lower and they lose revenue. This is a no brainer.

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News