Iraq is on track for what may be the country’s highest monthly crude exports even as the Middle East nation supports moves to extend Opec-led production cuts aimed at trimming bloated global inventories.
Vessels hauling 62 million barrels of the nation’s crude departed ports in the Arabian Gulf and Mediterranean Sea in the first half of May, according to tanker-tracking and shipping agent data. If sustained through May, the daily rate of 4.14 million barrels would exceed any month since Bloomberg began tracking shipments in January 2015. Current shipments, a partial proxy for output, would exceed sales in October which was the baseline month for the production accord.
Countries pumping more than half the world’s oil are trying to cut an excess of stored crude that’s weighing on prices by limiting their own supply. Led by the world’s biggest producers Saudi Arabia and Russia, the 24 nations party to the accord look set to extend the deal when they meet in Vienna next week. Iraqi Oil Minister Jabbar Al Luaibi said this month there’s a consensus around prolonging the deal and his country backs it.
“Iraq’s compliance to its production target was always going to be a moving target as the country was reluctant to limit production in the first place,” said Edward Bell, a commodities analyst at Dubai-based bank Emirates NBD PJSC. “The higher Iraqi volumes shows one of the flaws of the deal: the focus on production rather than exports.”
Iraq, the second-largest producer in the Organisation of Petroleum Exporting Countries, pumped 4.41 million barrels of crude a day in April, according to production estimates compiled by Bloomberg. The country produced more in each month so far this year than the 4.351 million barrels a day limit it agreed to under the Opec deal in November, according to the Bloomberg-compiled data. The production limits took effect in January, initially for a period of six months. Al-Luaibi said in March that Iraq would fully comply with its output limit in March and April.
Neighbouring Iran, Opec’s third-largest producer, also boosted the level of exports in the first half of May, ship-tracking data compiled by Bloomberg show. Observed crude shipments from the Arabian Gulf country rose to 2.14 million barrels a day in the first half of the month, up 366,000 barrels from the same period of April. Iran was allowed to raise output slightly to about 3.8 million barrels a day under the Opec deal.
Iraq’s commitment to Opec was that it would reduce output by 210,000 barrels a day. While exports are not a perfect match, they are one means by which external observers try to gauge output. Iraq doesn’t have the same capacity to store crude as some other producer nations, meaning that what’s pumped out of the ground is piped relatively quickly onto ships. Iraq produced less than 4 million barrels a day until June 2015, according to data compiled by Bloomberg.
Iraq’s export surge can partly be explained by catching up on reduced flows in April, when a damaged jetty was being repaired. Partial monthly data is subject to changes by the end of the month, with single shipments capable of shifting the barrels-a-day rate significantly. Still, the timing of the additional shipments isn’t ideal, said Emirates NBD’s Bell.
“This of course doesn’t look great coming ahead of next week’s Opec meeting,” Bell said, adding that Saudi and Russian backing for an extension meant the deal will likely be prolonged. “Overproduction by countries like Iraq mean there’s going to be more reliance on Saudi Arabia to compensate by over-cutting.”