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OPEC’s Second Largest Oil Producer Isn’t Complying With Output Cuts

Iraq, OPEC’s second-largest producer and the biggest cheater in previous production cut deals, faces problems in the new OPEC+ deal as well.  

Iraq's compliance with the deal is yet again in question, as negotiations with oil majors about which oilfields should cut production continue, even as the historic agreement entered into force nearly a week ago.

Iraq hasn’t informed yet its key oil customers about how much the country’s crude exports will be because of protracted talks with international oil companies, which have been further complicated by Iraq’s inability to form a new government, industry and trade sources told Reuters on Wednesday.  

As part of the OPEC+ deal, Iraq needs to cut around 1 million barrels per day (bpd) of its production, which stood at 4.585 million bpd in March 2020, as per OPEC’s secondary sources in its latest Monthly Oil Market Report (MOMR).

But Iraq has yet to agree how the cuts should be divided among the many major Iraqi oilfields, most of which are operated by international majors, including ExxonMobil, BP, Eni, and Lukoil, a spokesman for the Iraqi state-owned Basra Oil Company (BOC) told Reuters.

“Talks with international oil companies are still continuing to discuss ways of curtailing production that serve all parties and ensure mutual interests are observed,” the spokesman told Reuters, adding that he hopes a breakthrough could be reached soon.

According to an industry source in Iraq who spoke to Reuters, international oil firms refuse to cut production, while talks are further complicated by Iraq’s problems in forming a new government.

Related: This Could Be The Beginning Of A Tremendous Oil Rally

That’s why Iraq hasn’t yet informed its key oil buyers of its export schedule, which is a standard – albeit not obligatory – practice in the industry. The other large Middle Eastern producers from OPEC – Saudi Arabia, the United Arab Emirates (UAE), and Kuwait – have already told their clients that they would be cutting exports, according to Reuters’ sources.

Iraq was the biggest laggard in all previous OPEC+ cuts, and it’s no surprise that it continues to struggle to pull off some semblance of compliance with the cuts.  

Another serial laggard in compliance, Nigeria, was also trying to figure out how and from where to cut production as part of the deal, and was still negotiating with the oil majors, days before the cuts entered into force.

By Tsvetana Paraskova for Oilprice.com

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