Tuesday, August 4, 2015

Iraq Oil Exports Stall As Prices Drop In July 2015


Iraq’s oil exports leveled off in July 2015 after reaching a new post-2003 high in June. The reason for this change was that the budget deal between the central and Kurdistan regional governments broke down, and the latter sold most of its oil for itself rather than Baghdad last month. Iraq’s recent highs also contributed to a drop in prices for the last two months, which meant revenue went down. This is the dilemma that faces the country, as it needs to export as much as it can because it lacks other sources of making money, but that adversely affects the amount of money it can make during a glut in the world oil market.

Iraq’s oil exports flattened in July after a five month climb. The Oil Ministry announced that it had exported an average of 3.104 million barrels a day in July. That was down from June’s 3.187 million. Starting in January when exports hit a low of 2.535 million, the amount of oil sold by Iraq began to steadily increase reaching a series of post-2003 highs. In February it exported 2.597 million, going up to 2.98 million in March, 3.077 million in April, and 3.145 million in May. That was due to two factors. First, Baghdad and Irbil agreed on a deal that saw the latter sell oil for the former via its oil pipeline to Turkey in return for its share of the 2015 budget. Second, new oil fields came on line that did not produce the same quality oil as older ones. The Oil Ministry dealt with this issue by selling two grades of crude, Basra Heavy and Basra Light, which turned out to facilitate more sales.

Iraq’s steady increase ended when the budget deal broke down. At first, the Kurds were being paid by Baghdad proportional to how much it exported. In February for example, the Kurds accounted for 11.7% of total oil exports and received 11% of oil revenue. By May however, the KRG made up 14% of exports, but only got 8% of the profits. In June, the Kurds announced that they would start exporting on their own again as a result. By the middle of July the KRG said it was not shipping any oil for Baghdad via its pipeline. The Kurds claimed they sold an average of 516,745 barrels a day for themselves by the end of the month. In comparison, 71,017 barrels a day were exported for the central government in July. The Oil Ministry only reported 41,000 barrels a day from the Kurds being sold in July however, which means the remainder might not have reached Turkey in time to be exported that month.

Baghdad has been able to slightly make up for the collapse of the budget agreement with Irbil with increased flow through its Basra ports. In January Basra was exporting an average of 2.39 million barrels a day, and by July that was up to 3.064 million.

The two sides are holding open the door for a new arrangement in the future, but that would likely take months of talks. Still, Finance Minister Hoshyar Zebari announced that Baghdad had sent Kurdistan $139.5 million as its budget payout for its June exports, and encouraged the regional government to continue to sell petroleum for the Oil Ministry. That was unlikely to change the matter as the Kurds accounted for 5% of exports in June, but only got 2.6% of revenue.

Iraq has run into another problem during the summer. Its increasing exports have helped drive down prices for crude. In May Iraqi oil was selling for $55.87 per barrel, which was the highest mark so far this year. Since then prices have gone down to $55.62 in June and $50.90 in July. The global oil market has plenty of supply and Iraq is contributing to that leading to a drop in prices. This affects countries like Iraq, which is one of the most oil dependent in the world, because it lacks alternative sources of revenue. Its only recourse is to try to increase production to try to bring in more money while at the same time threatening to drive down its income even more in the process.

Iraq Oil Exports & Revenues 2014-15
Month
Avg.
Exports
Avg. Price
Per Barrel
Earnings
(Bil)
Jan. 14
2.228
$102.37
$7.074
Feb
2.799
$102.05
$8.001
Mar
2.396
$101.03
$7.507
Apr
2.509
$100.69
$7.582
May
2.582
$100.69
$8.077
Jun
2.423
$102.96
$7.470
Jul
2.442
$102.27
$7.742
Aug
2.375
$97.44
$7.172
Sep
2.542
$90.76
$6.916
Oct
2.432
$81.12
$6.120
Nov
2.51
$70.40
$5.25
Dec
2.941
$56.59
$5.161
2014 Avg.
2.51
$92.39
$7.013
Jan
2.535
$41.45
$3.258
Feb
2.597
$47.43
$3.449
Mar
2.98
$48.24
$4.457
Apr
3.077
$51.70
$4.8
May
3.145
$55.87
$5.447
Jun
3.187
$55.62
$5.289
Jul
3.104
$50.90
$4.908

2015 Oil Exports From Basra
Jan 2.39 mil/bar/day
Feb 2.29 mil/bar/day
Mar 2.71 mil/bar/day
Apr 2.62 mil/bar/day
May 2.69 mil/bar/day
Jun 3.022 mil/bar/day
Jul 3.064 mil/bar/day

2015 Oil Exports By Kurds
Jan 153,000 bar/day
Feb 306,000 bar/day
Mar 268,000 bar/day
Apr 450,000 bar/day
May 451,000 bar/day
Jun 164,733 bar/day
Jul 41,000 bar/day

Iraq Budget Payments To KRG 2015
Month
Kurdish % of Total Iraq Exports
Baghdad’s Budget Payments to KRG
(mil)
Kurdish % of Oil Revenues
Jan
6%
$208
6%
Feb
11.7%
$408
11%
Mar
8%
$439
9%
Apr
14%
$445
9%
May
14%
$430
8%
Jun
5%
$139
2%


SOURCES

eKurd, “Iraqi Kurdistan News in brief – August 1, 2015,” 8/1/15

Reuters, “Iraq’s southern oil exports hit record 3.064 mln bpd in July,” 8/1/15

Rudaw, “Kurdish exports through Baghdad last month earned $140m,” 7/29/15
- "Monthly report: KRG exported an average 516k bpd in July," 8/5/15

Van Heuvelen, Ben Osgood, Patrick,  "KRG exports rise, but pipeline problems loom," Iraq Oil Report, 8/5/15


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