Iraq to Increase Crude Exports by 150,000 Barrels

Oil reverses gear into a bear market as Iraq set to resume shipments from Kirkuk

Iraq, OPEC’s second-biggest crude oil producer, is set to increase crude exports by about 5% over the next few days after the state-run Northern Oil Co. (NOC) reached an agreement with the semi-autonomous Kurdistan Regional Government (KRG), as reported by Bloomberg on August 21st, 2016. Shipments will increase by about 150,000 barrels a day from three oil fields: the Baba Gorgor, Jambour, and Khabbaz located in the Kirkuk provincial council, the stronghold of the KRG, and the major area of dispute between the Government of Iran and the Kurds. Although the three oil fields are operated by the state-run Northern Oil Co. (NOC), their export pipeline is controlled by the KRG. Pumping operations have started with test pumping at 70,000 barrels a day on Thursday, August 18th, 2016, and the NOC aims to boost it to its normal rate at 150,000 barrels per day over the next few days.

Source: Kurdistan Regional Government, Bloomberg
Source: Kurdistan Regional Government, Bloomberg

NOC halts exports

The NOC halted exports from the Bai Hassan and Avana fields in March 2016 due to a payment dispute with the KRG. The Kirkuk-Ceyhan pipeline was exporting about 600,000 barrels a day of crude before the payment dispute, including 150,000 barrels from the NOC’s fields. It carried 457,000 barrels a day in July 2016 from KRG-operated fields, according to information on the KRG website and Bloomberg.

However, exports in February 2016 and March 2016 fell due to damage to a section of the pipeline in Turkey. Iraq’s exports were 3.71 million barrels a day in July 2016, according to the International Energy Agency, including oil sold by the KRG. The KRG generated $800 million a month from oil sales since June 2015 after deciding to export oil on its own; however, revenue dropped later to about $400 million a month due to lower crude prices after the benchmark Brent crude dropped 35% in 2015.

Iraq’s dispute with KRG hampers exports

Iraq, which holds the fifth-largest oil reserves in the world, has struggled to boost oil exports in 2016 as shipments from the northern part of the country, which includes the Kirkuk provincial council, were hampered by its dispute with the KRG. While the control over Kirkuk’s oil production is split between the Government of Iraq and the KRG, KRG controls two oil fields in the province, Bai Hassan and Avana, which export about 150,000 barrels a day.

Iraq is faced with a drastic drop in state revenue over the past two years after a slide in crude oil prices. At the same time, Iraq has exhausted much of its resources waging an ongoing war against Islamic State militants, who have seized parts of northern Iraq. Iraq was producing 4.78 million barrels a day in July 2016 compared to 4.44 million at the end of 2015, according to data compiled by Bloomberg and Iraq’s oil ministry.

Oil ends longest gain in four years

After Iraq announced that it would increase exports by 5%, crude oil fell, reversing its four-year gains amid a potential global oversupply scenario, as reported by Bloomberg on August 22nd, 2016. The oil market also reacted to news of a possible increase in Nigerian oil production after the Niger Delta Avengers declared an end to attacks on oil infrastructure, saying that they would hold talks with the government. Futures dropped as much as 3% in New York after climbing 16% in the previous seven sessions.

Source: Bloomberg
Source: Bloomberg

Oil prices had surged more than 20% last week after dipping below $40 a barrel earlier in August 2016. West Texas Intermediate for September delivery slid as much as 1.35% to $46.77 a barrel on the New York Mercantile Exchange. Brent for October settlement dropped 1.06% to $48.64 a barrel on the London-based ICE Futures Europe Exchange. The global benchmark crude slipped 1% on Friday, August 19th, 2016, to close at $50.88.i3

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