Lower Iraqi oil exports pressure OPEC’s high output
Iraq’s oil exports fell at least 250,000 barrels per day (bpd) in August, according to data quoted by Reuters, making it less likely the several-month trend of rising Organisation of the Petroleum Exporting Countries (OPEC) output, which has weakened oil prices, would be sustained.
Iraq has been a key driver of higher supply in 2015 from OPEC, which is focusing on keeping market share rather than curbing supply to support prices. But that growth looks to have stalled in August. Exports from Iraq’s southern terminals averaged 2.95 million bpd over the first 17 days of the month, down from July’s record 3.06 million bpd.
“Crude oil exports from southern Iraq are still within the current normal range now that Iraq has started exporting Basra Heavy crude oil,” Walid Khadduri, a Beirut-based energy analyst, said. “The shortfall is in northern oil exports. The Kurdistan Regional Government (KRG) exports of approximately 200,000 bpd are low.
The KRG average exports should be approximately 300,000- 400,000 bpd,” he said. The southern fields produce most of Iraq’s oil. Shipments from Iraq’s north via Ceyhan in Turkey by both the KRG and Iraq’s State Organization for Marketing of Oil (SOMO) have also fallen, partly because of the bombing of the pipeline in Turkey.
“SOMO exports of around 45,000 bpd from Kirkuk are also on the low side. SOMO exports from Kirkuk should be around 300,000 bpd,” said Khadduri. “Low northern Iraqi oil exports could be due to recent attempts by the Kurdistan Workers’ Party (PKK) to divert crude from the Kirkuk-Ceyhan pipeline for their own use.”
Iraqi media reported the loss of approximately $500 million worth of crude oil from the pipeline. Reports indicated that the PKK sabotaged the pipeline, Iraqi political sources said.
Turkey’s PKK is at war again with the Turkish government. KRG President Masoud Barzani’s Kurdistan Democratic Party (KDP) is friendlier with Ankara than the PKK.
There are extensive oil and commercial relations between the KRG and Turkey. The PKK has been attacking the Turkish armed forces daily as the military keeps up air raids and operations against PKK strongholds in south-east Turkey and northern Iraq.
The PKK took up arms against the Turkish state in 1984, seeking independence for the Kurdish-dominated south-east, although its demands later moderated to autonomy and greater rights.
Southern crude oil exports would exceed 2.75 million bpd through the end of 2015, which is the estimated volumes for the year’s budget, a source at the Iraqi Oil Ministry said.
Iraq’s southern oil exports rose in July to a record average of 3.064 million bpd from 3.02 million bpd in June, following Baghdad’s decision to split its crude stream into two grades, Basra Heavy and Basra Light, to reduce quality issues. Some companies increased production following the move, said the source, requesting anonymity.
“I don’t believe the disruption in the north will affect OPEC’s total output,” he said.
“The overwhelming majority of Iraqi exports are from the south. Iraq’s total northern shipments so far in August are less than half of the 517,000 bpd that the KRG said was exported in July,” Khadduri said. “It is doubtful that the disruption of Iraqi northern exports will affect much of OPEC’s production.”
Global oil markets slumped in June 2014 from around $114 a barrel on the back of a glut in supply and lack of demand, caused by an uncertain global growth outlook. Over a year on, benchmark Brent crude and US light crude trade at less than $40 per barrel.
The selloff was sparked by fears that China’s economy is slowing. The country’s officials recently devalued the yuan and have taken other steps to shore up its banks and businesses.
Global oil demand was expected to grow at its fastest pace in five years in 2015, the International Energy Agency (IEA) said in its August report, but lower oil prices and spending cuts will “take a toll” on producers outside OPEC.
While crude oil prices fell sharply during July and August, thanks to a glut of supply and a strong US dollar, the IEA noted in its latest monthly report that it expected demand to pick up. What has made matters worse for oil prices is the decision by OPEC, a 12-country oil-producing group led by Saudi Arabia, not to cut its production ceiling of 30 million bpd despite the slump in prices and demand.
OPEC has even been exceeding that limit and, the organisation’s August report said production reached a three-year high this summer and its members produced 31.51 million bpd in July.