Never mind cutting output to staunch a global glut, the talk so far at this week’s OPEC summit is mostly about pumping more oil.
Iraq will increase exports this month as fighting with Islamic State militants spares its biggest-producing regions, the country’s oil minister said Wednesday. His counterpart from Iran urged the group to make room for more output when global sanctions recede. The prospect of more supply led BP Plc’s chief executive officer to predict price “softness” will persist.
The Organization of Petroleum Exporting Countries has been pumping above its production quota for months, determined to subdue supply from higher-cost producers. The strategy is working, with a record drop in the number of active U.S. rigs and billions cut from global producers’ spending plans. In contrast, some of OPEC’s members spent this week outlining how they plan to expand output.
“While Saudi Arabia has increased its production significantly, Iraq is still likely to be the largest contributor to OPEC’s production increase this year,” Ehsan Ul-Haq, senior analyst at KBC Energy Economics, said by phone. “It’s a country which has invested a lot in the past few years and with the help of Western know-how, now they are seeing more production.”
All But One
BP, Total SA and Royal Dutch Shell Plc are among the oil giants seeking to invest in Iran once sanctions end. Iraq’s oil minister, Adel Abdul Mahdi, said he would talk with most oil executives at the seminar under way before Friday’s meeting, when the ministers will formally decide on OPEC’s production target.
All but one of 34 analysts surveyed by Bloomberg last month predict the 12-nation group will maintain the current daily limit of 30 million barrels. Analysts at ABN Amro Bank NV said OPEC may even raise the ceiling. Morgan Stanley and Barclays Plc say there’s a risk it will do so.
The Organization of Petroleum Exporting Countries pumped 31.58 million barrels a day last month, the most since 2012, as its members compete for market share and try to crowd out higher-cost producers including shale drillers. Prices dropped the most in four years after the last meeting in November, when OPEC left output unchanged despite a global surplus. Brent crude, the global benchmark, fell 2.6 percent to $63.80 a barrel Wednesday, compared with $108.82 a year ago.
Iraq, leading the surge in production, will add about 100,000 barrels a day to its exports in June, Abdul Mahdi said in an interview at the OPEC International Seminar in Vienna on Wednesday. That’s an increase of about 3.2 percent from May when the nation shipped a record 3.145 million barrels a day.
“The main and most important fields are in safe areas, and operations there are normal, infrastructure is improving, security is improving in terms of loading, storage,” Abdul Mahdi said. About 800,000 barrels a day of Basrah Heavy, a new grade introduced this month, have been sold for June, he said.
Iraqi government forces have been successful in preventing the spread of Islamic State insurgency to the country’s south, which accounts for most of the nation’s output. The capture of the northern city of Mosul last June prompted an increase in crude futures to as much as $115.71 a barrel.
Also at the Vienna seminar, Iran’s oil minister, Bijan Namdar Zanganeh, delivered a letter to the group telling them to make room for the country’s rising output. Iran is discussing its nuclear program with world powers, and an easing of sanctions against the Persian Gulf state would allow it to boost production and exports of crude.
“With sanctions removal, after a short time we can return our production to pre-sanctions levels,” Zanganeh told reporters. OPEC “needs to open space for us if it wants prices to stay the way they are,” he said.
OPEC’s stronger members expressed satisfaction with their course. Saudi Oil Minister Ali al-Naimi said the strategy is working. Qatar’s minister said demand is improving and the market would be more balanced by year-end. Kuwait called the market “very encouraging” and said “prices are good.” The United Arab Emirates said the glut has decreased significantly.
Those countries have the upper hand over Venezuela and Angola, which did not hide their strain. The minister from Africa’s second-largest producer said he wants prices back at $80 a barrel. His counterpart from Venezuela, holder of the world’s largest reserves, said the market is over supplied by as much as 2.5 million barrels a day.
While oil prices have been low for several months, “things will balance out,” OPEC Secretary-General Abdalla El-Badri told reporters.