The ink on the OPEC “deal” is not dry yet, and in fact it won’t be until November when the actual deal which breaks down the oil production quota for every OPEC member is ratified – if that ever happens – and already the bickering has begun. As Reuters reported moments ago, Iraq questioned one of the two methods OPEC is using to estimate the oil production of its members, signalling the issue could be a problem for the country to join output limits that the group agreed to start implementing this year.
The reason for Iraq’s displeasure is that OPEC uses two sets of figures for output estimates – submissions by the countries themselves and estimates by secondary sources, which are usually lower but are seen as better reflecting real output.
Think of its as GAAP vs non-GAAP production, with OPEC’s number strategically lower for one simple reason: OPEC’s member nations have and always will cheat when it comes to oil production numbers and quotas. The difference, which in Iraq’s case amounts to 284,000 bpd (or the difference between its own estimate of 4.638mmbpd and the OPEC estimate of 4.354mmbd) for the month of August, is substantial.
“These figures (secondary sources) do not represent our actual production,” Iraqi Oil Minister Jabar Ali al-Luaibi said. He said Iraq’s current production could be as high as 4.7 million barrels per day.
And since Iraq, as well as every other OPEC member who is not given an Iran-like exemption to keep producing more, will try to be pegged to the highest possible exiting production number, the negotiation now shifts to just what is the actual production number.
Incidentally, the nearly 300kbpd delta in August production estimates for Iraq alone is within the threshold of the upper range of the proposed cut which as noted before would be between 32.5 and 33.0mmbpd relative to the existing peak OPEC output of 33.2mmbpds – a spread which is as small as 200kbpd. In other words, unless just Iraq agrees to use the OPEC production estimate and demands that the quota be set on its own number, it means that there is possibility there will be no production cuts at all as Saudi will have to accmomodate Iraq’s greater production estimate.
Incidentally, Iraq is not alone, and if it is given a green light to peg production to its own production estimate, then similar demands will arise from Venezuela, UAE and Kuwait, all of whose self-reported crude oil output is far higher than the official OPEC number.
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