Crack shows in OPEC deal already

Iraq almost blocked the fragile agreement to cut production by objecting to the data used by the cartel.

Iraq is objecting to the data OPEC uses, showing the fragility of the deal to cut production. Picture: Akos Stiller/Bloomberg.

A crack is already evident in OPEC’s deal to cut oil production: Resurgent producer Iraq is disputing the output numbers that underpin the accord.

Members of the Organization for the Petroleum Exporting Countries spent six hours in an Algiers conference centre Wednesday night hashing out a proposal to raise oil prices by cutting production. They emerged with a tentative plan that boosted oil markets but provided only broadbrush strokes for a decrease in production. The deal said OPEC will limit output to between 32.5 million barrels a day and 33 million barrels a day, down from 33.2 million barrels a day in August.

But the proposal didn’t say how much each individual country will have to cut. And it won’t be completed until November, giving plenty of time for it to fall apart.

Iraq showed the accord’s fragility at Wednesday’s meeting, when it almost blocked the deal by objecting to the oil-production data OPEC generally uses to determine how much each country can produce, said people familiar with the matter. Iraq said the information, which is compiled by independent analysts, under reports Iraq’s actual output. Relying on that data, Iraqi Oil Minister Jabbar al-Luaibi argued, could lead to Iraq getting a smaller share of the group’s production.

Mr Luaibi only got on board when OPEC’s secretary-general offered to set up a committee to assess each members’ production, but he still threatened to walk out of the group’s next meeting in November if the numbers weren’t to his liking, the people said.

“I had to look after the interests of my country,” Mr al-Luaibi said in an interview Thursday, noting that the difference in production figures “is wide.”

Such sticking points have undone previous attempts to reduce production. The latest deal was only possible after longstanding rivals Saudi Arabia and Iran reached an understanding that Iran — which is emerging from years of sanctions that hurt its production — would be exempt from any cuts.

Iraq is also trying to emerge from decades of low production. For years it was a quiet member of OPEC, exempt from production cuts because of the damage decades of sanctions, neglect and war wrought on its oil industry. But new investments have boosted its output over the past few years, adding to the global oil glut mostly fuelled by rising shale production in the US

OPEC members no longer allow Iraq to claim an exemption from cuts, and Iraq is pushing OPEC to use its own production figures as the basis for any cut. Over the course of 2016 the country has consistently reported that its output is more than the numbers provided by secondary sources, including several media outlets. The discrepancies ranged from 179,000 barrels a day to nearly 400,000 barrels a day in January

If that happens, other members will likely challenge their output figures, threatening OPEC’s ability to enact promised cuts, said Oliver Jakob managing director of Switzerland-based consultancy Petromatrix.

The stakes are high for OPEC’s members. Most get the bulk of their revenue from oil sales. Low prices are painful, but pumping less also limits income.

Just hours after the marathon meeting ended Wednesday evening, Iraq’s oil minister publicly asserted that the country is pumping several hundred-thousand barrels a day more than many analysts say and lambasted journalists for reporting figures other than the country’s official data.

“You won’t work in Iraq if you continue this way,” he told one reporter from a pricing agency that assesses OPEC members’ output.

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