Iraq oil loss set to drive prices higher

Iraq’s oil exports fell by nearly 1m barrels a day last week after its southern oil pipeline was bombed on May 8.

Financial Times
The loss was substantially greater than the 400,000 b/d drop reported by Iraqi oil officials last week and is likely to drive already-high world oil prices higher yet. The loss was in part also due to technical problems at Iraq’s northern export pipeline.

“This is way bigger than people had been expecting. It is not fully known in the market and is bullish in the medium term,” said Neil McMahon, analyst at Sanford Bernstein.

“The reduction of 1m barrels a day in Iraqi exports effectively nearly wipes out any Opec increase we could get.”

New data recently released by the US Army Corps of Engineers, which in charge of rehabilitating the Iraqi oil industry, show crude exports fell to 860,000 b/d for the week ended May 13, down from 1.80m b/d in April.

Crude production dropped from 2.59m b/d in April to 1.95m b/d, a level not seen since last October.

Opec – the Organisation of Petroleum Exporting Countries – is likely to agree an increase of the cartel’s quota of at least 1.5m b/d in the next two weeks.

However, Saudi Arabia is the only member with substantial extra capacity and traders expect an actual increase of Opec’s output in June of about 500,000-700,000 b/d.

Iraqi oil officials said this week that southern exports were back to more than 1.65m b/d after repairs were completed on the pipeline. However, details from Iraq are unreliable and analysts said the most trusted numbers come from the US government, often retrospectively.

Mr McMahon pointed out that, regardless of when repairs are completed, the drop in exports will show up in the main consuming regions of Europe and the US in about three to five weeks, the time it takes tankers to reach their destinations.

Meanwhile exports through Iraq’s north are half of what they were in March and April because of sabotage and technical problems.

The missing barrels of Basra Light, the oil produced in Southern Iraq, are especially damaging as there is already a shortage of light crude, which produces the petrol needed as the US enters its summer holiday driving season at the end of this month. Opec’s extra oil would largely be heavier crude, which is needed less.

The reduced exports also means an extra loss of $21m (?17.5m,