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The Single Biggest Threat To An OPEC Deal Extension

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If OPEC fails to agree to extend their production cuts for another six months, Iraq could be a major reason why.

For many years after the 2003 U.S. invasion, Iraq was exempt from OPEC’s production quotas in order to help the country rebuild. But in recent years, Iraq has succeed in ramping up its output, overtaking Iran to become OPEC’s second largest oil producer. Today, production stands at 4.4-4.5 million barrels per day (mb/d).

As OPEC’s second largest producer, Iraq is pivotal to the success of the deal signed late last November to prop up prices.

 But Iraq has lagged behind other OPEC members in its efforts to reduce output. It agreed to cut production by roughly 210,000 bpd from October levels, requiring it to average an output level of 4.351 mb/d over the course of the six-month compliance period between January and June.

Those figures were agreed on an October baseline (although Iraq has argued with OPEC over which numbers to use for months). In December, just before the deal was set to take effect, Iraq ramped up output to 4.642 mb/d. It then cut production by 166,000 bpd in January, but from that higher December level, taking it down to 4.476 mb/d, according to OPEC’s secondary sources, or only slightly below its baseline and still above its targeted level as part of the deal. No matter; the OPEC deal is a six-month average, so Iraq could still lower output in subsequent months and comply with its commitments. Iraqi officials reassured its OPEC peers that further reductions were forthcoming.

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Written By Nick Cunningham of Oilprice.com

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