Oil flows out of Iraq suggest that the Middle East country is complying, at least in part, with Opec’s plan to curb production.
Observed shipments in January were 109,000 bpd below October’s level, the month used as a baseline for the Organization of Petroleum Exporting Countries’ reductions plan. That indicates that Iraq has implemented around half of the production cut it agreed as part of the accord, assuming flows provide an indication of output.
Shipments from Opec’s second-largest producer fell to 3.805mn bpd in January from December’s 4.03mn, tanker-tracking data and port agent reports showed, with the decline mainly reflecting a 6.5% drop in flows from the southern port of Basra.
“The Iraqis are making the bulk of their cuts at southern fields,” said Robin Mills, chief executive officer of Dubai-based consultant Qamar Energy, who advises clients working in the region. “Most of the decline is coming in the south because the Iraqis have moved forward some of the maintenance on fields there. The Kurds haven’t been cutting and I don’t expect them to cut at all.”
Opec and 11 other producing countries including Russia agreed late last year to cut a combined 1.8mn bpd of output starting from January, with Iraq’s share set at 210,000 barrels. Some analysts expressed doubts that Iraq would deliver its share of the cuts, potentially undermining the drive to rebalance the market and drain inventories bloated by two years of unfettered production that helped to crash prices.
During the months of negotiation that led to November’s Opec agreement, Iraq had insisted repeatedly that it should be exempted from cuts as it battles the Islamic State insurgency and rehabilitates its oil industry after years of war and sanctions. The country also disputed the data to be used in any discussions, insisting that numbers compiled by Opec underestimated Iraqi production by about 5%. Iraq ultimately relented, agreeing to reduce its output.
While oil prices rallied in the weeks after Opec announced its supply curbs on November 30, with crude touching an 18-month high early in January, the gains subsequently stalled amid scepticism about how much of the cutbacks would be delivered. Opec as a whole was on course to reduce supply by 900,000 bpd in January, Geneva-based tanker-tracker Petro-Logistics said last week. That’s equivalent to about 75% of the cut that the producer group agreed.
Adherence to the deal is “great” and Opec probably won’t need to extend the accord when it expires in the middle of the year, Saudi Arabia Energy Minister Khalid al-Falih said on January 22 when countries met in Vienna to discuss monitoring implementation.
Iraq was close to implementing its share of the agreed production cuts and would be in full compliance by the end of the month, Oil Minister Jabbar al-Luaibi said January 23. The Middle Eastern producer had already reduced output by 180,000 bpd and would cut another 30,000 soon, al-Luaibi said in a Bloomberg television interview.
While 90% of the output cuts have come from fields operated by companies run by Iraq’s federal government, Baghdad is also coordinating reductions with the semi-autonomous region of Kurdistan and international oil companies, he said.
Iraq saw lower shipments from both Basra and from the Ceyhan terminal in Turkey, from where it exports crude originating in the Kurdish region and from Baghdad-controlled fields around Kirkuk, according to the ship-tracking data.
Exports from Basra averaged 3.235mn bpd in January, down from a record 3.46mn in December, the data showed. Exports of Kurdish crude, and oil from Iraq’s northern fields through Ceyhan, fell to about 569,000 bpd from 572,000 barrels in December.
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