Iraq’s OPEC+ Compliance to Fall Short of Target

Iraq produced more than 650,000 bbld above its target output level in May and is now being asked to make up for its non-compliance in future months, says Rystad Energy. The consulting company estimates Iraq’s actual ability to cut more barrels is limited to between 300,000 and 500,000 bbld. Achieving any output target below 4 MMbbld is overambitious given Iraq’s current dire economic need for oil revenues.

Out of the 650,000 bbld, Iraq has asked international companies such as BP, ExxonMobil, and Lukoil to help out with 350,000 bbld of cuts in the Basrah region, and the state operator, Basra Oil Co. (BOC), to cut the remainder 300,000 bbl.

Iraq committed to OPEC to produce 57,000 bbl below its target production level of 3.75 MMbbld in July and then go deeper and come in 258,000 bbld below in August and September against the slightly higher target production level of 3.96 MMbbld. There is even talk of trying to get Kurdistan to contribute with 100,000 bbld of production cuts, which appears to be futile.

Rystad Energy estimates Iraqi oil production reached 4.8 MMbbld in October 2018, the month used as a reference in estimating the production cuts for the OPEC+ member nations. Iraqi oil production reached 4.6 MMbbld in April 2020 and the compliance level was set at 3.7 MMbbld.

“Even before COVID-19 hit, Iraq and the rest of OPEC+ were cutting production to manage the market. Then, after the group failed to renew the agreement in March it was an all-out production war. But Iraq failed to ramp up production, so when the deeper cuts started in May, most BOC fields were already at near-compliance levels, leaving little to cut,” says Rystad Energy’s senior analyst Aditya Saraswat.

SOURCE: The Weekly Propane Newsletter, July 2, 2020. Weekly Propane Newsletter subscribers receive all the latest posted and spot prices from major terminals and refineries around the U.S. delivered to inboxes every week. Receive a center spread of posted prices with hundreds of postings updated each week, along with market analysis, insightful commentary, and much more not found elsewhere.