An OPEC+ Country Forsee Deadlock Due To Cut in Oil Production!



  • Iraq, OPEC’s second largest oil producer, has instructed its biggest company, Basra Oil Co. (BOC), to cut output from May.
  • It is a part of its efforts to reduce its output by 1 million bpd, or 1% of global supply.
  • But it has yet to agree an action plan with other oil companies such as BP BP.L, Exxon XOM.N, Eni ENI.MI or Lukoil LKOH.MM, which operate the biggest fields in the country.

Ahmed Rasheed, Alex Lawler and Ahmad Ghaddar write for Nasdaq about Iraq’s difficulties  to fully implement an OPEC deal with Russia and other producers on a record supply cut.

Companies refusing to cut oil production

One industry source active in Iraq said the companies were refusing the cut and that delays in forming a new government in Iraq were complicating the discussions.

Iraq yet to inform on cuts to exports

OPEC Gulf states, including Saudi Arabia, Kuwait and the United Arab Emirates, have informed their customers of cuts to exports. Kuwait, Oman and the UAE have also officially informed OPEC.

Three trading sources said Iraq has not issued any such statements to its regular oil buyers yet.

Two of the sources said Iraq’s May export plans from the south were broadly in line with April’s at around 3.3 million bpd.

There is no requirement for participating countries to tell OPEC how they will make their cut, but informing customers about their oil allocations is standard practice.


The challenge for many OPEC+ countries arises from how much they are asking international oil companies (IOCs) to cut, said Amrita Sen of analyst firm Energy Aspects.

“Beyond logistical shut-ins, some of the cuts needed from Iraq, Nigeria and others when they have barely complied with previous cuts are simply not going to happen,” she said.

Companies producing in Iraq’s southern oilfields operate service contracts that pay them a fixed dollar fee for their output and are also compensated in crude cargoes.

Oil companies shielded

This type of contract shields oil companies against sharp falls in oil prices. But it also means that with the OPEC cuts, Iraq ends up with less crude to market itself.

“Most operators have told Iraq, they are happy for them to cut but want their fees repaid in full. It is basically a deadlock,” said a source from one of the four companies.

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Source: Nasdaq


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