Iraq OPEC’S main laggard
Still trying to implement output cut: sources
BAGHDAD/LONDON — Iraq has yet to inform its regular oil buyers of cuts to its exports, suggesting it is struggling to fully implement an OPEC deal with Russia and other producers on a record supply cut, traders and industry sources said.
Less than full compliance by Iraq, as well as by smaller producers such as Nigeria and Angola, could hurt the OPEC+ group’s efforts to cut output by 9.7 million barrels per day from May 1, equivalent to about 10 per cent of world demand before the coronavirus crisis led to a slide in consumption and prices.
Iraq, OPEC’S second largest oil producer, has instructed its biggest company, Basra Oil Co. (BOC), to cut output from May as part of its efforts to reduce its output by 1 million bpd, or 1 per cent of global supply, an oil ministry source said. But it has yet to agree an action plan with other oil companies such as BP, Exxon, Eni or Lukoil, which operate the biggest fields in the country, a BOC spokesman said.
“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 BOC spokesman said.
“We can’t say talks hit deadlock. We expect a breakthrough to be reached soon.” Iraq’s oil ministry could not be immediately reached for comment. BP, Exxon, Eni and Lukoil declined to comment.
One industry source active in Iraq said the companies were refusing the cut and that delays in forming a new government in Iraq were complicating the discussions. “It’s a mess at the moment,” the source said.
OPEC Gulf states, including Saudi Arabia, Kuwait and the United Arab Emirates, have informed their customers of cuts to exports. Kuwait, Oman and the UAE have also officially informed OPEC. Three trading sources said Iraq has not issued any such statements to its regular oil buyers yet.
Two of the sources said Iraq’s May export plans from the south were broadly in line with April’s at around 3.3 million bpd.there is no requirement for participating countries to tell OPEC how they will make their cut, but informing customers about their oil allocations is standard practice.
OPEC’S Secretary General Mohammad Barkindo declined to discuss individual country compliance: “We are now focused on the full and timely implementation of this historic agreement,” he told Reuters.
‘DEADLOCK’
The challenge for many OPEC+ countries arises from how much they are asking international oil companies (IOCS) to cut, said Amrita Sen of analyst firm Energy Aspects.
“Beyond logistical shut-ins, some of the cuts needed from Iraq, Nigeria and others when they have barely complied with previous cuts are simply not going to happen,” she said.
Companies producing in Iraq’s southern oilfields operate service contracts that pay them a fixed dollar fee for their output and are also compensated in crude cargoes.
This type of contract shields oil companies against sharp falls in oil prices. But it also means that with the OPEC cuts, Iraq ends up with less crude to market itself.
“Most operators have told Iraq, they are happy for them to cut but want their fees repaid in full. It is basically a deadlock,” said a source from one of the four companies.