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Iraq Crude Production To Rise: Have Pricing Woes Ended?

Low crude pricing is continuing for quite some time now, impacting not only companies but economies at large. This is being echoed by a sharply falling rig count in the domestic space as reported by Houston-based oilfield services company Baker Hughes Inc. BHI in its weekly rig count. Also, Janet Yellen’s dovish stance has kept skepticism alive on the feasibility of any domestic growth.

However in sharp contrast, as per a report by independent oil and gas consultant Rystad Energy, Iraq’s crude oil production is set to increase in 2016. According to the agency, Iraq’s crude output levels are expected to follow the growth trajectory of 2015, when production increased 12% year over year. Some of the foremost energy companies like Exxon Mobil Corporation XOM, CNOOC Ltd. CEO, Eni SpA E, Royal Dutch Shell plc RDS.A, and BP p.l.c. BP operate in the region.

This trend is the worst for energy players which have been hit hard by beleaguered crude fortunes. Oil price got another jolt after Saudi Arabia’s crown prince Mohammed bin Salman said that the kingdom might agree to a production freeze only "if all countries” including Iran agree to limit production to Jan 2016 levels. This has led to doubts over the validity of the oil producers’ meeting in Doha Apr 17.

Crude Pricing War Too Costly for Iraq?

The Organization of the Petroleum Exporting Countries (“OPEC”) has been consistently increasing production despite pricing woes. Per a survey by Reuters, supply from OPEC rose in Mar 2016 to 32.47 million barrels per day (bpd) from 32.37 million bpd in Feb 2016. The organization intends to win the market share war against the U.S. shale producers. Iraq being the second-largest producer in the cartel has been a prime contributor to this growth so far. The country currently produces over 4 million barrels of oil a day. But the strategy seems to have backfired on the nation.

Iraq houses the world’s fifth-largest oil reserve and the commodity contributes substantially to the nation’s revenues. In March, Iraq’s oil revenue was $2.2 billion, down heavily to low crude prices despite higher shipments. Exports rose to 3.286 million barrels per day in March from 3.225 million in February. This led to reduced funds for the development of assets. The costly war that the nation is fighting against the ISIS is wrecking further havoc on its economy.  

Iraq owes several billion dollars to international energy firms that develop its fields. The future development of these oilfields runs the risk of being terminated if the spending cut translates into deferred payments for these companies.

End Note

Crude’s performance year to date has been volatile with a high of $43 per barrel to a bottom of $26 per barrel all in the first three months and is now hovering around the $37 per barrel mark. Given the fact that any global cutback on output seems far-fetched, we are apprehensive that the pricing woe may continue to ravage the players across the sections of the industry for the time being.

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