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Monthly Opec+ output hikes enough to meet demand: Iraq
raq’s state-owned Somo has thrown its weight behind the Opec+ collective’s ongoing production regime, a day after contradictory messages from the UAE cast doubt on the group’s plans and rattled oil prices.
The 19-member group has faced repeated calls from consumers, led by the IEA, to consider accelerating the pace of its production increases to help reverse the rise in prices. But it has stuck to its guns, and will again next month raise the collective output quota by 400,000 b/d. From May it plans monthly increases of 430,000 b/d, until all the production it cut in 2020 has returned.
“Through the continuous follow-up of what the global market is going through today in terms of developments and variables, particularly with regard to the balance of global supply and demand for crude, Iraq believes that the level of oil exports supplied to the global market is commensurate with the level of global demand,” Somo said. “The planned increases from Opec+ are sufficient to address any shortages that may occur in supply.”
The Iraqi company’s intervention came after a day of conflicting messages from the UAE. The country’s ambassador to the US Yousef al-Otaiba first suggested Abu Dhabi could push Opec and its non-Opec partners to consider increasing its production by faster than planned.
This is a position largely out of step with that of Saudi Arabia and other Opec+ members, namely that high prices are primarily down to sentiment and geopolitical tension, particularly around the conflict in Ukraine. The UAE energy minister Suhail al-Mazrouei later clarified that the UAE is “committed to the Opec+ agreement and its existing monthly production adjustment mechanism”.
These inconsistent messages caused extreme volatility in crude futures markets, with front-month Ice Brent trading in a $26/bl range yesterday and closing down by more than 13pc. Today the contract is up by more than 4pc, at around $116/bl.
Whether Opec+ can raise production by much further is unclear. Dwindling spare capacity and underinvestment in several of the group’s members have limited the collective’s ability to deliver fully on its monthly increases, and its production was a massive 800,000 b/d below target in January according to Argus’ latest production survey.
Iraq, which by its own admission failed to hit its Opec+ output target for a third consecutive month in February, says it has capacity to raise production further, but it would “need some investment to provide that to the market.”
Opec and its non-Opec partners are scheduled to next meet on 31 March to decide on May production strategy.
By Nader Itayim