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Saudi, Iraqi ministers discuss OPEC+ compliance, as Baghdad pledges catch-up oil cuts

Highlights

Iraq says will cut 400,000 b/d extra in August, September

Iraq has struggled to meet its output cut commitments

Saudi Prince Abdulaziz has cracked down on compliance

London — Saudi Arabia is keeping the pressure on Iraq to adhere to its OPEC+ production cut commitments, amid signs it likely did not achieve full compliance with its quota yet again in July.

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Iraq, the OPEC+ alliance's third largest producer, has consistently struggled to make its full output reductions but has pledged to make additional cuts of 400,000 b/d below its quota in August and September to make up for its overproduction in May, June and July, according to an Aug. 7 joint statement from the two countries. That would put Iraq's effective quota at 3.404 million b/d.

Iraq pumped 3.716 million b/d in June, according an average of the six secondary sources used by OPEC to monitor production, including S&P Global Platts. July output figures will be revealed on Aug. 12, and Iraq's cut commitment may be adjusted further based on the data, the joint statement said.

Saudi energy minister Prince Abdulaziz bin Salman and Iraqi counterpart Ihsan Ismaael "reaffirmed their full commitment to the OPEC+ agreement" during a phone call late Aug. 6, the joint statement added.

Prince Abdulaziz has made quota compliance a top priority as co-chairman of a key OPEC+ monitoring committee with Russian energy minister Alexander Novak. The committee is next scheduled to meet online Aug. 18.

OPEC and 10 allies implemented a historic 9.7 million b/d production cut accord in May, as the oil market was reeling from the impact of the COVID-19 pandemic, and the deal has been successful in lifting Brent prices from the teens in April to around $45/b in recent days. Mexico has since exited the deal.

The cuts eased to 7.7 million b/d in August, with the alliance anticipating rising demand.

Iraq's quota from May to July was 3.592 million b/d. It is 3.804 million b/d from August through the end of the year, not including its additional cut.

Making the cut

Iraq has consistently struggled to hit full compliance in the three and a half years that the OPEC+ alliance has cooperated on output cuts.

The economically strained and politically fractured country has previously said it needs to pump as much as it can as it rebuilds from years of war against the Islamic State. It is also hampered by its agreements with international oil company partners that would impose severe financial penalties if certain production levels are not hit, as well as disputes between the federal government and the semi-autonomous Kurdish region.

In July, Iraqi crude exports climbed 4.4% to 3.218 million b/d, according to official ministry data and shipping agents' reports seen by Platts, as higher shipments from the Kurdish region in the north more than made up for declines from elsewhere in the country.

Platts estimates Iraqi refinery runs averaged about 400,000 b/d in the month, while crude consumption for power generation was about 180,000 b/d.

Adding those to the export figure would indicate Iraqi crude production was around 3.8 million b/d, not including any stock changes.

In a separate statement Aug. 6, Iraq's State Oil Marketing Organization said its additional cuts highlight the country's "high commitment to overcome all challenges that stand against the oil production cut in order to serve its ultimate goal in achieving the necessary supply/demand balance in the oil market at this time when bad effects of COVID-19 pandemic are still in place."

In their call, Prince Abdulaziz thanked Ismaael for his efforts to improve Iraq's compliance, their joint statement said.

"The two ministers stressed that efforts by OPEC+ countries towards meeting production cuts and the extra cuts under the compensation regime, will enhance oil market stability, help accelerate the rebalancing of global oil markets and send a constructive signal to the market," the statement said.