Iraq cancels 1M barrels of crude, defers more to meet OPEC+ targets: SOMO
Shafaq News/ Iraq has canceled a1-million-barrel spot crude sale and will defer two more shipments as part ofefforts to comply with its OPEC+ production targets, following overproductionin the first half of the year, a senior official from the state oil marketerSOMO said on August 29 and reported by S&P Global.
The three deferred shipments total 3 millionbarrels, but the official did not specify the grades affected.
According to the senior official, this marksIraq's most serious attempt to align crude production with its OPEC+ quota. Theexport cuts will be accompanied by reduced refinery runs, lower output in theKurdistan region, and decreased crude consumption in the power sector. Thesemeasures are expected to reduce production by approximately 280,000 barrels perday (b/d). However, questions remain over Baghdad's ability to limit Kurdishproduction outside the federal government's direct control.
The cuts come as OPEC+ faces challengesstabilizing the oil market amid weak Chinese demand and high output fromnon-allied producers in the Americas. The group plans to gradually reverse 2.2million b/d of voluntary cuts starting in October, depending on marketconditions.
On August 28, Platts, part of S&P GlobalCommodity Insights, assessed Dated Brent at $81.07 per barrel, down from nearly$90 in early July. Iraq, which has been the largest overproducer in the group,is now under pressure to rein in output.
The SOMO official said that Iraq plans to reduceexports by 130,000 b/d, mainly through the canceled and deferred cargoes, whichwill bring average exports below 3.4 million b/d in August and down to 3.3million b/d in September. Although the shipment changes could not beindependently confirmed, the official noted that exports had already decreasedfrom 3.45 million b/d on August 25 to 3.1 million b/d by August 28.
The official also announced a "tremendousdecline in local consumption," with domestic crude use expected to fallfrom 550,000 b/d to 500,000 b/d as cooler temperatures reduce the need forcrude-burning power generation.
In the Kurdistan Region, production, which SOMOestimates at a maximum of 150,000 b/d, will be cut to 46,000 b/d. Anyadditional volumes will require payments from the regional government toBaghdad. Failure to comply could result in cuts to the budget allocationsBaghdad sends to the Kurdistan Regional Government (KRG), including salary funds.
The KRG could not be reached for comment for S&PGlobal, and the Association of the Petroleum Industry of Kurdistan,representing oil companies in the region, did not immediately respond. As ofMarch, the Kurdistan region was owed more than $7 billion in unpaid dues fromBaghdad, according to a statement from the Regional Government.
SOMO's reductions aim to lower Iraq's totaloutput to 3.91 million b/d in September, which is in line with the latest OPEC+compensation plan. Iraq exceeded its production quota by hundreds of thousandsof barrels per day between January and August, with a 251,000 b/doverproduction in July, based on secondary sources, including the Platts OPECSurvey.
According to SOMO data, Iraq had previouslycommitted to limiting exports to 3.3 million b/d in July, but actual exportsreached 3.486 million b/d. Based on secondary estimates, the country's overalloil production in July rose by 53,000 b/d month on month.
"There will be some skepticism in themarket until export data shows a drop — and that it is a sustained drop,"said Jim Burkhard, vice president of oil markets at Commodity Insights."The market will need time to assess. Exports from the KRG remain awildcard as well."
A third compensation plan from Iraq will besubmitted to OPEC in September, as August production is expected to exceed itsquota.
Iraq is not the only country struggling tocomply. Russia and Kazakhstan also submitted compensation plans but remainedover quota as of July. On August 28, a senior Kazakh energy ministry officialsaid compliance would improve due to maintenance at major fields through November.Maintenance at Kazakhstan's Tengiz field, which began on August 1, is expectedto remove 130,000 b/d from the market until September 10. Further maintenanceat the Kashagan field from October 3 to November 11 will potentially remove anadditional 400,000 b/d from the market.
Kazakhstan produced 1.545 million b/d in July,exceeding its quota of 1.45 million b/d. Meanwhile, Russia, overproduced sinceApril, stated on August 9 that output in August and September would offsetJuly's 67,000 b/d overproduction. A detailed compensation plan from Russia hasyet to be released.
The OPEC+ Joint Ministerial MonitoringCommittee, co-chaired by Saudi Arabia and Russia, is scheduled to meet onOctober 2 to review the group's production compliance. A full OPEC+ ministerialmeeting is planned for December 1 in Vienna, with the possibility ofextraordinary meetings if market conditions warrant policy changes.
