Lower Iraqi oil exports pressure OPEC’s high output

Friday 28/08/2015
Members of the oil police force at Nahr Bin Umar oil field, north of Basra, south-east of Baghdad, on August 19th.

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.