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Shipments from OPEC members are already significantly down in
the first half of May compared to last month. Total volumes
exported from the 13 members in week 18 reached 25 million b/d,
with shipments having only marginally surpassed 20 million b/d last
week. The cartel seems to be rather decisive and immediately
responding to its commitment to reduce production, in an effort to
support oil prices in the global market. All eyes are now on Iraq,
which has been considered the big OPEC+ deal cheater last year, as
the country tries to reduce production without financially
collapsing.
Iraq has been one of the least compliant members last year but
was determined to meet its target within May. OPEC's second biggest
producer has already informed some of its crude oil buyers that the
full contractual volumes requested for June won't be met. Their
customers who have been buying barrels from Iraq would need to
replace these volumes with other sources. This must have come as a
surprise as memories of Iraq not fully complying to OPEC+
production cuts are still rather fresh. Iraq has been focusing on
improving its market share in the Asian market last year, but the
country has now quickly proceeded by reducing supply to Asian
clients even before Saudi Aramco. Clients to receive reduced oil
volumes from Iraq in June include Total, India's Bharat Petroleum
Corp and South Korea's GS Caltex.
Producers around the world, including OPEC+ and other exporters,
seem to have been left with no other choice, as pressure against
oil prices remains the biggest enemy for all of them. But this
can't be an easy task for Iraq for sure. The target of cutting
barrels for June is clear but coming up with a detailed plan on how
to adjust production of each oilfield could prove rather
challenging.
The Middle Eastern country was facing difficulties in forming a
new government which will need to take decisions about how much
crude oil barrels it will export. According to the recent OPEC+
deal, Iraq had to reduce its production by 1.06 million b/d, from
4.59 million b/d in March. International oil majors have been
operating the country's biggest oilfields, with companies such as
BP, Eni, ExxonMobil and Lukoil being highly involved. Negotiations
with these companies held during the past days were quite tricky.
But Iraq is now expected to cut its oil output only by around
700,000 b/d as it failed to finalize an agreement on deeper
reductions with international oil majors.
Iraq remains deeply divided and the collapse of oil prices will
add more pressure to the country which derives most of it's
government revenues from the export of crude oil. Most recent
figures suggest that oil export sales reached only USD 1.4 billion
in April, when USD 5.5 billion is needed to cover just state
expenditure and pensions. Monthly average earnings did stand above
USD six billion last year. The new government is now negotiating
with international oil companies to postpone payments to them while
focusing on cutting costs. Iraq pays around USD one billion a month
to IOCs. Iraq suffered the most severe hit to production among OPEC
members in April, which reached 110,000 b/d driven by low fuel
demand and lack of refined product storage capacity.
Posted 15 May 2020 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, IHS Markit
