Even if Iraq’s southern oil fields and export facilities remain untouched by the horrifying violence that’s swept the north, once widely-held expectations for a doubling or even tripling of Iraqi oil production in coming years likely need to be scaled back, analysts say. And if so, expectations that the price of a barrel of Brent crude could drop back below triple digits might be dashed as well.
“Any long-term forecast that says oil prices will be $90 or even sub-$100 needs Iraq to produce at 6 million to 8 million barrels a day, if not higher,” said Amrita Sen, chief oil analyst at Energy Aspects, in a phone interview.
ICE August Brent futures, the European benchmark, lost ground late Monday, slipping 1 cent to $112.93 a barrel. On a nearby basis, Brent futures last week hit their highest level since September.
On the New York Mercantile Exchange, July crude oil fell a penny to close at $106.90 a barrel. Prices jumped 4.1% last week.
The International Energy Agency in October 2012 forecast Iraqi production would more than double to 6 million barrels a day by 2020 and would top 8 million barrels a day by 2035. The forecast saw Iraq playing a key role in servicing growing demand from Asia, particularly China, and saw Iraq overtaking Russia to become the world’s second-largest oil exporter by the 2030s. The Iraqi government has set a target for daily production of 10 million barrels a day by 2017.
The idea of continued Iraqi production gains was particularly tantalizing as hopes for Libya’s meaningful return to the export market were repeatedly dashed by the North African nation’s own internal strife.
Of course, forecasting Iraqi oil production has never been easy. Some overly optimistic forecasts had previously seen Iraqi production hitting 10 million barrels a day by 2005, Sen noted. In fact, Iraq’s production tanked in the aftermath of the U.S. -led invasion, falling to an annual low of 1.813 million barrels a day in 2005.
While that early optimism proved misplaced, Iraqi oil production eventually began to gather steam, topping 2 million barrels a day in 2007 and hitting a peak of 3.6 million barrels a day in February, according to the IEA.
For now, analysts are downplaying any major threat to Iraqi exports, which are pegged at around 2.5 million barrels a day. The fighting has remained confined largely to the north, while around 90% of key production infrastructure is seen remaining out of harm’s way, wrote analysts at Citi.
If so, that could mean there’s room for nearby oil futures, particularly Brent, to give back some recent gains, wrote analysts at Commerzbank. But with no other country set to achieve anywhere near the production increase forecast for Iraq, the $110 a barrel mark may remain a near-term floor.
[by William L. Watts, writing for MARKETWATCH]
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