London — The federal government of Iraq has restarted exports of Kirkuk crude through the Kurdistan-Turkey pipeline Friday, paving the way for a rise in loadings from OPEC's second-largest producer.
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Flows of Kirkuk crude through the pipeline were averaging 50,000 b/d, with a target of achieving 100,000 b/d in the coming weeks, sources close to the matter told S&P Global Platts.
The government of Iraq and the semi-autonomous Kurdistan Regional Government have agreed a tentative deal under which the latter has given assurances that it will transfer all federal Iraqi crude to storage tanks operated by North Oil Company (NOC) at Ceyhan for Iraq's State Oil Marketing Organization to sell, sources added.
The rise in Iraqi volumes comes at a tricky time for OPEC and its 10 allies, who are pushing to implement output cuts in 2019.
Iraq produced 4.62 million b/d in October, according to the latest S&P Global Platts OPEC survey, a rise of 270,000 b/d from October last year, driven by an increase in its southern exports.
The Iraqi oil ministry confirmed this development saying that Baghdad and Erbil had reached an "agreement in principle" to resume the export of oil from the fields of Kirkuk via the pipeline to Ceyhan.
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Oil ministry spokesman Assem Jihad said in a statement that under the current deal, Federal Iraq will transport "50,000-100,000 b/d of oil" through the pipeline and that the "export and marketing of this quantity will be done by SOMO."
Last October, federal government forces recaptured the key Kirkuk fields from KRG and NOC subsequently took control of them, shutting down exports from the northern pipeline route by around 300,000 b/d. SOMO has not exported any crude oil from the Turkish port of Ceyhan since June 2017.
Production from the NOC-operated fields -- comprising Bai Hassan, Avana Dome, Bab Dome, Jambour and Khabbaz, all in the Kirkuk area -- is currently 300,000-350,000 b/d.
The restart to the northern pipeline route comes a month after the Iraqi parliament chose Kurdistan's former Prime Minister, Barhan Saleh, as its next president, in a move that has helped break the country's long-running stalemate between Erbil and Baghdad over oil exports.
Sources have said this deal is only temporary and further details still need to be agreed for it to become permanent.
This augurs well for Iraq which has been focused on pushing its oil production capacity to 5 million b/d despite being hampered by logistical constraints.
But the rise in Iraqi exports from the north will add more volumes to an oil market that is starting to look very well supplied amid rising inventories.
KRG oil flows through the Kurdistan-Turkey pipeline have been averaging around 400,000-450,000 in the past month compared to a peak of 600,000-650,000 b/d in September 2017, few weeks before the NOC takeover.
Prior to this deal, the pipeline to Ceyhan contained roughly 300,000 b/d of spare capacity after the KRG recently expanded the line's total capacity from 700,000 b/d to 1 million b/d.
US officials had worked with Iraq for months to restart exports of crude out of Kirkuk. Washington has been pushing for a resolution to this dispute as it would ensure more oil in the market to make up for the fall in Iranian oil export volumes.
In a tweet Friday, John Bolton, Trump's national security adviser, wrote that he was "encouraged" by the oil export agreement between Iraq and the KRG. "A promising first step to return to 2017 levels," Bolton wrote. "Can restore lost revenue for Iraqi people and services and make Iraq energy independent."
A US State Department official declined to comment in detail on the crude export deal Friday, deferring to Iraq's government for further information.
"We do not comment on deliberations occurring within other countries," the State official said. "We recognize that Iraq could contribute to increased global oil output."
"Iraq has been working with us on reducing Iranian influence and opening Kirkuk, which would be another 200,000 b/d of oil," Brian Hook, head of the State Department's Iran action group, told reporters on a conference call this month.
In September, US Energy Secretary Rick Perry told reporters that Trump administration officials were working with several allies to increase oil output ahead of the reimposition of sanctions on Iranian crude oil, which went into effect on November 5.
Perry cited additional US output if Permian pipeline capacity can be increased, the Neutral Zone between Saudi Arabia and Kuwait and contested fields in the Kurdistan Region of Iraq as examples of potential supply growth.
Iraq, which imports Iranian natural gas for its power stations, has been granted an exemption from US sanctions for natural gas trade with Iran.
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