MESOP : THE ACTUAL OIL REPORT KURDISTAN – IRAQ – OPEC

Iraq Escalates Internal OPEC Scrap / The Kurdish Pipeline – By Grant Smith – Bloomberg – 2015-01-28 – The battle for customers among OPEC members that helped trigger oil’s collapse is about to escalate.

Iraqi crude production is climbing from a 35-year high as it adds growing Kurdish supplies to its exports, while southern oilfields remain unscathed by Islamic State militants. Finding buyers for the new output means offering more attractive terms than rivals in the Organization of Petroleum Exporting Countries, say Citigroup Inc., DNB ASA and Barclays Plc.

Oil’s biggest slump in six years gained momentum in October as a wave of discounts by Middle Eastern producers signaled OPEC members were intent on defending market share against booming shale output from the U.S. The price of Saudi crude for Asian buyers was cut to the lowest in at least 14 years last month, a move followed by Iraq, Kuwait and Iran. “This price war is not just between Saudi Arabia and the U.S., it’s also intra-OPEC,” said Seth Kleinman, head of European energy research at Citigroup in London. “Iraq and the U.A.E and everyone else is cutting prices to defend their own market share. Iraq is ramping up production and has rising volumes to move.”

Brent crude, the international benchmark, fell 48 percent last year, the biggest drop since 2008 amid a production surplus estimated by OPEC at about 1.5 million barrels a day. The slide continued this month to the lowest since March 2009. Brent for March settlement lost $1.15 to $48.45 a barrel on the ICE Futures Europe exchange in London at 2:14 p.m. in New York on Wednesday.

Record Output

The discount on shipments of Iraq’s Basrah Light grade to Asia — at $3.70 a barrel to the average of regional benchmarks Oman and Dubai crude in February — remains near the widest since at least August 2003. Saudi Arabia set the discount for its Arab Medium blend at $2.80 on Jan. 5.

Iraqi crude output has hit a record 4 million barrels a day, Oil Minister Adel Abdul Mahdi said in Baghdad on Jan. 18. Average monthly output rose 290,000 barrels a day to 3.7 million in December, the most since 1979, the International Energy Agency, a Paris-based adviser to 29 developed nations, said in a report on Jan. 16.Exports from the Kirkuk oil field, which neighbors the Kurdish region in northeast Iraq, resumed for the first time since March following a deal in December between the central government and the semi-autonomous Kurds. Kirkuk crude, halted amid attacks by Islamist fighters, can now be shipped to Turkey using the Kurds’ pipeline. Exports from the south have also surged and are scheduled to reach a record 3.3 million barrels a day in February, the IEA estimates.

Iraqi Production

OPEC agreed in Vienna on Nov. 27 to maintain its production ceiling of 30 million barrels a day, resisting calls for cuts from members including Venezuela and Libya. The group pumped 30.2 million barrels a day last month, exceeding its target for the seventh consecutive month as Iraq expanded output by 150,000 barrels a day, according to data compiled by Bloomberg.

Iraq needs to keep increasing oil production because tumbling global prices have reduced government revenue by about 50 percent, Deputy Prime Minister Rowsch Nuri Shaways said at the World Economic Forum in Davos, Switzerland on Jan. 21. “It is escalating the price war,” Torbjoern Kjus, an analyst at DNB in Oslo, said by e-mail. “For most OPEC producers the rationale is that the lower the oil price, the more they are incentivized to produce to make up for the price loss.”

Saudi Discount

In October, Saudi Arabia set the discount on its November sales to Asia to the widest since 2008, preceding a series of price cuts by other Gulf nations that Citigroup, Commerzbank AG and Iraq’s oil minister described as a “price war.”

The reductions gave an early signal that OPEC’s Gulf members would opt to defend their market share against growing U.S. shale supplies, rather than cut output to boost prices. Brent futures have plunged 37 percent since the group’s decision to maintain production levels.”With so much crude expected to come on, you have to market a little bit aggressively sometimes just in order to get your crude to the market,” Eugene Lindell, the senior crude-market analyst at consultants JBC Energy GmbH, said by phone from Vienna on Jan. 22. “They’re already fairly steeply discounted if you look at Basrah Light versus Arab Medium, and it’s quite possible that discount could widen further.”

Other analysts weren’t convinced. The price differentials set by producers are adjusted mostly to reflect changes in refiners’ profitability, rather than to serve as instruments for competition, according to Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London.

Kurdish Pipeline

The accord on Dec. 2 between Iraq’s central authorities and the Kurdistan Regional Government, easing years of friction over the Kurds’ right to export oil independently, enables 550,000 barrels a day to be shipped via the Kurdish pipeline to the Turkish port of Ceyhan. About 250,000 will flow from Kurdish territory and 300,000 from Kirkuk in northern Iraq, previously blocked by Islamic State.Exports from the Kurdish region, which has independently signed deals with international companies deemed illegal by Baghdad, have been accelerating. The region is moving 400,000 barrels a day through the pipeline to Turkey it built last year, and will reach 1 million barrels a day on the link by the end of 2015, KRG Natural Resources Minister Ashti Hawrami said in London on Dec. 17. “Iraq’s holding on quite well,” Miswin Mahesh, an analyst at Barclays in London, said by phone on Jan. 21. “They’ll say they have every right to sell it on the market, and they might even sell at distressed prices.”