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Iraq - crude data

Opec-member Iraq is cutting output, but the statistics are still confusing

Iraq is keeping its Opec promise to cut output to support prices. But because of the smog through which the country's official energy statistics are presented, pinning down the exact size of the reduction is proving difficult.

The Opec agreement cited member states' October output figures, based on secondary sources, as the reference point for the cuts. In Iraq's case this was 4.56m barrels a day, a figure that Baghdad said was too low. For much of 2016 the Baghdad authorities insisted that the country's true output figure was about 250,000 b/d higher than that estimated by secondary sources. Nevertheless, the Iraqi authorities agreed that they would trim 210,000 b/d as their part of the deal, saying that the adjustment would be made in full by the end of January.

Preliminary estimates for the month indicate that Iraq has cut output by around 200,000 b/d, just shy of the target figure. But these estimates suggest too that the savings have been made on December production, which was high at 4.71m b/d. This would mean that Iraq's actual output in January was around 4.51m b/d - close to the official October reference figure - rather than the envisaged 4.35m b/d if the cut had been made from the figure cited in December's Opec deal. In other words, in the first month that the agreement was in force, Iraq's production had shed just half of its agreed level, averaging only 109,000 b/d less than the Opec reference figure of 4.56m b/d, rather than 210,000 b/d.

Iraq's export figures for January support the indications that the country produced less oil than the previous month. Shipments through Basra and Khor al-Amaya, the outlets for almost all Iraq's light and heavy crude output, were estimated at 3.26m b/d, down by 250,000 b/d on December. But December saw a record loading figure of 3.51m b/d. The January figure was close to the average for most months in 2016. Export statistics are not an accurate reflection of oil-production trends because Iraq keeps large volumes of crude oil in storage to minimise demurrage payments for tankers waiting to load.

The cuts so far appear to have been made mainly from fields operated by Iraqi state companies - Luhais and Nassiriyah, in particular. But energy sources in Baghdad say that reductions have been made at the giant Rumaila oilfield, operated by BP, to provide an opportunity for maintenance work to be carried out. Iraq's state marketing company Somo announced in September that Rumaila production was averaging 1.4m b/d.

So far there are no indications that the Kurdish Regional Government (KRG) has been asked by Baghdad to contribute to cuts, or that the Erbil authorities, facing chronic fiscal problems, would contemplate such a move. The likelihood is that KRG production, supplemented by small volumes from the state North Oil Company, will continue to be exported through Ceyhan at the 2016 average of around 0.6m b/d.

While the firming of oil prices, brought about by the Opec and non-Opec agreements, is welcome news to the federal government the Baghdad authorities will be hoping for further increases in the months ahead. Both the war on the Islamic State group in Mosul and elsewhere and the cost of supporting many thousands of homeless civilians are draining the nation's coffers. Prime minister Haider al-Abadi said global demand had "increased and this has helped raise prices, but they won't return to the levels of 2013. Oil will not reach desired levels" before end-2018 or 2019. He did not say what levels he had in mind.

Iraq, therefore, is impatient either for a substantial increase in oil prices or an opportunity to expand production and exports further. While some oilfield-capacity expansion projects in the south of the country are on hold because of fiscal pressures, others are moving ahead. Shell, despite media reports that it is looking to sell its interests in Iraq, recently signed a $210m deal with Halliburton under which three rigs will drill development wells and carry out work-over activity for a two-year period. The expectation is that around 30 wells will be drilled, enabling production capacity to be raised from 220,000 b/d to 400,000 b/d.

At the same time, the Iraqi government is investing in a project to double oil-export capacity at Khor al-Amaya, from 0.6m b/d to 1.2m b/d. By mid-2017 it is hoped that work on digging a new channel at the terminal will allow Suezmax tankers to load at Khor al-Amaya.

If Opec scraps the production cutback deal after six months, then Iraq will openly produce and sell as many barrels as it can. If the agreement is extended, then the haze surrounding Iraqi output data is likely to carry on obscuring the full picture.

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