Iraq’s oil minister had some explicit, though not surprising, things to say over the weekend. Adel Abdul Mahdi said OPEC will adhere to its December 4 decision to allow its members to produce without a recommended ceiling, and that any production cut aimed at raising oil prices would need to be coordinated with non-OPEC members. Iraq is also reportedly seeking a deal with China amid the imminent return of competing Iranian oil to the global market early next year, as it also continues to deal with internal strife, geopolitical discord, and the ISIS incursion.
“We Are In A Real World”
Speaking to Reuters at an OAPEC (Organization of Arab Petroleum Exporting Countries) gathering in Egypt, the oil minister of OPEC’s second-biggest producer said, “We are in a real world, OPEC is not the only producer or the only player. So we have to see what the decisions of others should be- Russia and the United States and other producers.”
Iraqi Oil Minister Adel Abdul Mahdi
He added, “OPEC can’t take a unilateral decision, for example, to cut production and others…raise production. Either we all go to cut production to really defend prices or we have to wait and see.”
“We Are Sticking With The December 4 Decision”
“We can’t repeat those old experiences of OPEC and then lose both, lose production and the prices. Because now many other producers are capable of really raising their production … We are sticking (with the Dec. 4 decision),” he told Reuters.
Though expressing hope that oil prices would recover, Mahdi said he did not “think it will be tomorrow…We can see that the price doesn’t correspond with the cost in most oil fields. This is not logical.”
“There is no doubt that oil prices will rebound,” Mahdi said. “This current level is too low, and it’s affecting oil producers. I think economic factors and fundamentals are still strong.”
OAPEC was founded in 1968 to encourage the development of the oil sector in member states as a component of an economic integration plan among Arab countries. Seven of the countries within OAPEC are also OPEC members.
Iraq Looks To China To Prepare For Iran Competition
With Iranian barrels set to return to the global market early next year after the lifting of sanctions, the Wall Street Journal is reporting Monday that Iraq is in discussions to establish an oil-marketing joint venture with Sinopec, China’s largest refiner.
In September, Ali Kardor, chief of investment for the Iranian National Oil Company, said that Iran believes exports to Asian countries such as China will increase sooner than some in the West had expected. Kardor added that China and South Korea have expressed interest in purchasing more Iranian crude.
In anticipation of the return of Iranian crude, the WSJ’s sources told the paper that Iraq’s State Organization for Marketing of Oil— the government organization overseeing the sale of Iraq’s oil— is in advanced talks to found a joint venture with Unipec, Sinopec’s trading branch.
The sources told the WSJ that the partnership would be equally divided between each company and would ?be based in Singapore. It would be aimed at marketing Iraqi oil in China. Iraq would supply tankers from its fleet to the JV, the sources said, while Unipec would provide the financing. Both sides could establish competing arrangements, the sources added, as the partnership would not be exclusive.
Asked by The Wall Street Journal about the discussions, Iraq’s Mahdi said ?he was traveling to China on Monday but did not offer further comments.
Iraq Increasingly Bends East
With its output quickly ramping up, Iraq is increasingly focused on China as a key oil market. China was Iraq’s largest market? in 2014, purchasing 22% of its exports, EIA data show.
However, Iraq is confronted by increasing competition from Iran, which could add 500 K/bpd – 1 M/bpd of additional oil into the global oil market by summer 2016, according to some estimates. month.
Iraqi Oil Sector Challenges
Iraq’s oil production has increased by 2 M/bpd since 2010, reaching a record high of 4.4 M/bpd in 3Q15, according to Global Risk Insights. This growth is partly due to the drive by lawmakers to increase oil output to generate much needed revenue to fight ISIS in the northern and eastern portions of the country.
Over a decade of war, the ISIS incursion, internal oil export disputes with semi-autonomous Kurdistan, inadequate investments and low oil prices has severely strained the country’s oil sector.
Moreover, low oil prices and rising imports are also straining the Central Bank of Iraq and oil revenues. The country’s foreign currency reserves have reportedly declined from $78 billion at the end of 2013 to $59 billion as of mid-2015.
Low oil prices are also decreasing the value of current exports and preventing the government from making bigger gains. Figures cited by Global Risk Insights show that last year the government derived around $300 million per day in revenue. Currently, this figure is down to about $240 million a day.