Iraq cancels 1M barrels of crude, defers more to meet OPEC+ targets: SOMO
Shafaq News/ Iraq has canceled a 1-million-barrel spot crude sale and will defer two more shipments as part of efforts to comply with its OPEC+ production targets, following overproduction in the first half of the year, a senior official from the state oil marketer SOMO said on August 29 and reported by S&P Global.
The three deferred shipments total 3 million barrels, but the official did not specify the grades affected.
According to the senior official, this marks Iraq's most serious attempt to align crude production with its OPEC+ quota. The export cuts will be accompanied by reduced refinery runs, lower output in the Kurdistan region, and decreased crude consumption in the power sector. These measures are expected to reduce production by approximately 280,000 barrels per day (b/d). However, questions remain over Baghdad's ability to limit Kurdish production outside the federal government's direct control.
The cuts come as OPEC+ faces challenges stabilizing the oil market amid weak Chinese demand and high output from non-allied producers in the Americas. The group plans to gradually reverse 2.2 million b/d of voluntary cuts starting in October, depending on market conditions.
On August 28, Platts, part of S&P Global Commodity Insights, assessed Dated Brent at $81.07 per barrel, down from nearly $90 in early July. Iraq, which has been the largest overproducer in the group, is now under pressure to rein in output.
The SOMO official said that Iraq plans to reduce exports by 130,000 b/d, mainly through the canceled and deferred cargoes, which will bring average exports below 3.4 million b/d in August and down to 3.3 million b/d in September. Although the shipment changes could not be independently confirmed, the official noted that exports had already decreased from 3.45 million b/d on August 25 to 3.1 million b/d by August 28.
The official also announced a "tremendous decline in local consumption," with domestic crude use expected to fall from 550,000 b/d to 500,000 b/d as cooler temperatures reduce the need for crude-burning power generation.
In the Kurdistan Region, production, which SOMO estimates at a maximum of 150,000 b/d, will be cut to 46,000 b/d. Any additional volumes will require payments from the regional government to Baghdad. Failure to comply could result in cuts to the budget allocations Baghdad sends to the Kurdistan Regional Government (KRG), including salary funds.
The KRG could not be reached for comment for S&P Global, and the Association of the Petroleum Industry of Kurdistan, representing oil companies in the region, did not immediately respond. As of March, the Kurdistan region was owed more than $7 billion in unpaid dues from Baghdad, according to a statement from the Regional Government.
SOMO's reductions aim to lower Iraq's total output to 3.91 million b/d in September, which is in line with the latest OPEC+ compensation plan. Iraq exceeded its production quota by hundreds of thousands of barrels per day between January and August, with a 251,000 b/d overproduction in July, based on secondary sources, including the Platts OPEC Survey.
According to SOMO data, Iraq had previously committed to limiting exports to 3.3 million b/d in July, but actual exports reached 3.486 million b/d. Based on secondary estimates, the country's overall oil production in July rose by 53,000 b/d month on month.
"There will be some skepticism in the market until export data shows a drop — and that it is a sustained drop," said Jim Burkhard, vice president of oil markets at Commodity Insights. "The market will need time to assess. Exports from the KRG remain a wildcard as well."
A third compensation plan from Iraq will be submitted to OPEC in September, as August production is expected to exceed its quota.
Iraq is not the only country struggling to comply. Russia and Kazakhstan also submitted compensation plans but remained over quota as of July. On August 28, a senior Kazakh energy ministry official said compliance would improve due to maintenance at major fields through November. Maintenance at Kazakhstan's Tengiz field, which began on August 1, is expected to remove 130,000 b/d from the market until September 10. Further maintenance at the Kashagan field from October 3 to November 11 will potentially remove an additional 400,000 b/d from the market.
Kazakhstan produced 1.545 million b/d in July, exceeding its quota of 1.45 million b/d. Meanwhile, Russia, overproduced since April, stated on August 9 that output in August and September would offset July's 67,000 b/d overproduction. A detailed compensation plan from Russia has yet to be released.
The OPEC+ Joint Ministerial Monitoring Committee, co-chaired by Saudi Arabia and Russia, is scheduled to meet on October 2 to review the group's production compliance. A full OPEC+ ministerial meeting is planned for December 1 in Vienna, with the possibility of extraordinary meetings if market conditions warrant policy changes.
