OPEC’s second-largest oil producer hit record production figures in August with an output of 4.88 million barrels per day (bpd), according to the latest figures from S&P Global Platts.
Iraq’s highest-ever production count has contributed to what may be OPEC’s first monthly output rise of the year, throwing a wrench into the 14-member organization’s plans to limit global oil supply and keep a floor under declining crude prices.
“The recent increases in Iraqi production turned what was a sort of minor headache for OPEC into a fully-blown migraine,” Dave Ernsberger, global head of commodities pricing at S&P Global Platts, told CNBC on Thursday.
The problem for the cartel, Ersnberger says, is twofold. “It makes it more difficult for OPEC to manage the perception that it will balance markets, as demand is currently under pressure.”
It also creates “tremendous pressure” within OPEC itself, as these production gains come at the expense of Iran, he added: “Whenever Iranian production is under pressure and Iraqi production increases, keeping the peace within OPEC becomes incredibly difficult to do.”
To put Iraq’s 4.88 million bpd figure in perspective, the country’s output five years ago was 2.96 million bpd, and between the 2003 U.S. invasion of Iraq and 2010 it veered between less than half a million barrels per day to barely touching 2.5 million. After more than 15 years of conflict and a dire need to rebuild, Iraq’s government hails this growth as a success.
Iraq’s crude oil exports also increased to 3.6 million bpd in August, from 3.56 million bpd the previous month, according to its oil ministry.
Meanwhile, a recent Reuters survey found that OPEC saw its first production increase of 2019 in August to 29.61 million bpd, up 80,000 bpd from the month prior. The group in early July announced its decision to curb output into 2020 to boost prices amid a dim demand outlook and rising shale production in the U.S. But the price of oil still remains depressed.
Iraq’s production, then, “is a pretty significant problem for OPEC,” Ernsberger said. “And it will further make it difficult when OPEC comes together to find acceptable ways forward heading into the end of the year.”
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