DUBAI — Iraq’s oil minister on Wednesday endorsed dramatically higher crude production cuts for OPEC and its non-OPEC allies, known as OPEC+, in order to lift global oil prices after a year of lackluster demand.
The comments, from a country that has consistently pumped beyond its agreed output targets, came as the price of Brent crude rose 1.8% in morning trade London time.
“The 1.2 (million barrels per day) is not really that effective,” Thamer Ghadhban told CNBC’s Dan Murphy in Vienna, referencing the communal output cuts agreed by OPEC+ in December of 2018 that were extended last June. Oil ministers are now convening to discuss whether to carry on or deepen the cuts.
Iraq, the second-largest oil producer of OPEC’s 14 members, is also one of its most chronic over-producers, having consistently violated output cut agreements due to its complicated political situation and heavy reliance on hydrocarbon revenues for reconstruction after years of war.
But Ghadhban, ahead of OPEC+ meetings on Thursday and Friday, voiced his support for a further 400,000 barrel per day (bpd) production cut across the group’s members.
“The 1.6 (million bpd) … I think it would be more effective, no doubt about that,” the minister said. “It would improve the situation within the oil supply and demand. And it is not only OPEC now who is the main player — OPEC contributes oil about 30%, and the number one producer is the U.S. So there are new realities in the world.”
The minister maintained that it was too early to know whether such cuts would be unanimously approved by the group’s 24 members, something that is required for any production cut agreement.
“I think there will be opposition to that by some — and others will support it, what will be the final verdict is too early to say,” Ghadhban said. “It is very much dependent on a number of main factors, one whether it is in the interest of individual countries, especially the big producers. (There are) those who would like to see stability and improve prices, and others want to maintain their share. Because at the end of the day, if there is additional cuts, most of the contribution will come from the bigger producers.”
Indeed, top OPEC producer Saudi Arabia has taken on the lion’s share of the group’s output cuts, pumping less than 10 million bpd of crude over the past year — well below its agreed target.
In August and September, Baghdad reported its highest oil production on record, averaging 4.85 million barrels per day (bpd). That volume that has increased steadily over the past few years despite nearly two decades of war and a bloody three-year battle to drive out ISIS.
Iraq has since reined in production, with a reduction in output of roughly 120,000 bpd from September to October. Ghadhban told CNBC in September that “We are trying to adhere to our commitment that we have agreed on the third of December last year with our colleagues in OPEC and outside OPEC, but with difficulties, of course.”
The minister on Wednesday also encouraged a continuation of cuts beyond June of 2020 to at least the end of next year.
“If (the agreement) is extended to the middle of 2020 … it will not be that effective,” he told CNBC. “The glut, or increase in the commercial reserves will continue and therefore we will not see significant change. But if tomorrow OPEC+ decides to rollover the 1.2 (million bpd) till the end of the year, I believe, based on the analysis, that it will be more significant.”
Despite acknowledging that the proposal to reduce production by nearly half a million barrels per day will prove controversial, Ghadhban was confident in the ability of OPEC+ to come to some kind of agreement.
“So … we have to wait and see till tomorrow and after tomorrow what will be the consensus,” he said. “The way OPEC+ operates, they always reach consensus at the end of the day.”