The prospects of a surge in Iraqi oil exports through the Kurdish region after a new oil minister took over there weighed heavily on oil prices on Monday.
Jabbar Al Luaibi, who started work last week, immediately told local media in Baghdad that he saw various ways to resolve a long-running dispute between the central government and the Kurdish Regional Government (KRG), which could smooth the way to resume shipments through the Kurdish-controlled pipeline north to the Turkish export terminal at Ceyhan.
Iraq and Iran have together accounted for most of the world’s increase in oil exports this year and the chance of a significant Iraq export increase – perhaps as much as 5 per cent – hit a market already nervous that prices had risen too far too fast since the beginning of the month.
The world benchmark North Sea Brent futures had rallied by US$10 per barrel from early August to Friday’s four-month high of $50.88, but were down at $49.40 midafternoon Gulf time on Monday.
The rally had been partly inspired by talk of an informal meeting of Opec oil ministers at the end of next month on the sidelines of a meeting in Algeria, even though the prospects of any concrete deal from that meeting were never discussed by the key players.
The run-up seems to have run out of steam as speculators cover their positions. “We’ve largely seen a short-covering rally rather than a shift in the assessment of the market’s uneven fundamentals,” says Ed Bell, a commodities analyst at Emirates NBD.
Iran and Iraq have each pushed production up this year by more than 500,000 barrels per day, the former as nuclear-related sanctions were lifted in January and the latter as it made improvements to southern oilfields even amid a tight squeeze on investment by oil companies.
Saudi Arabia pushed production to a record last month of more than 10.6 million barrels per day, although the increase over the course of the year is 240,000 bpd, less than half the increase from both Iraq and Iran.
The declines in world production, meanwhile, have come from big cuts in non-Opec producers such as the United States, as well as disrupted Opec players, mainly Libya, Nigeria and Venezuela.
The fragile recovery in the oil market since the beginning of the year is therefore vulnerable, Mr Bell said.
While the new cabinet in Iraq has improved the prospect for a deal, there have been many false dawns before in the dispute that has been running for nearly two years amid mistrust on both sides.
A Kirkuk region political official quoted by newswires saying shipments of up to 150,000 bpd to Ceyhan from previously shut-in oilfields would resume soon played a large part in the turn in market sentiment.
But there are still a number of obstacles to be worked out, according to a consultant in Erbil who acts as a spokesman for the KRG.
“Let’s not forget, the previous oil minister [Adil Abdul Mahdi] resigned not long ago because of the mess the central government ministries are in,” he said.
The Kurds control two oilfields in the Kirkuk province, Bai Hassan and Avana, which export about 150,000 bpd, while the central government controls the Baba Gorgor, Jambour and Khabbaz fields, which have similar capacity.
There are also ongoing security issues, despite the gains made against militants in the west of Iraq. The Bai Hassan complex was attacked as recently as late last month, which affected production at the facility.
amcauley@thenational.ae
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