Iraq's Oil Export Deal Expires, Global Oil Prices Rise

Strategic Insights -

Iraq's decision to turn down a UN deal to extend the oil-for-food program until December 4 has led to a significant increase in global oil prices. Despite the program's lapse, Iraqi Ambassador to the UN Saeed Hasan has not denounced the program, leaving room for a potential agreement in the near future. The global oil supply has grown tighter since production cuts began in April, and the sudden absence of Iraq's exports may impact refiners that rely heavily on the country's sour oil.

Key Takeaways:

  • Iraq's refusal to sign an extension of the oil-for-food program has led to a sudden halt in exports, peaking at 2.3 million bbl/day.
  • The global oil supply has grown significantly tighter since production cuts began in April, making the sudden absence of Iraqi exports more impactful.
  • Refiners such as Chevron, Exxon, Valero, Koch, and Clark in the US, and Elf and Total in Europe, may have to scramble for barrels due to the absence of Iraqi exports.
  • A two-week absence of Iraqi exports would not significantly impact global oil inventories, but may still allow for a concerted response from Opec and other producers.
  • The corresponding shortfall in exports for the duration of the extension would have theoretically amounted to about 32 million bbl, or 25% of the global overhang.
  • Paperwork requirements and weekend delays may have limited the ability of Iraq to export under the two-week extension, reducing the actual shortfall.
  • Iraq continued exporting oil beyond the November 20 deadline, with pipeline shipments continuing until Monday morning.

Statistics:

  • 2.3 million bbl/day: The peak export rate of Iraq's oil.
  • 32 million bbl: The theoretical shortfall in exports if Iraq had continued to export at full capacity during the two-week extension.
  • 25%: The percentage by which the corresponding shortfall in exports would have exceeded the global overhang in oil inventories.
  • 7.35 million bbl: The backlog of Basrah Light oil that was not expected to be lifted until today.
  • 3:50 a.m.: The time when pipeline shipments of Kirkuk grade oil to Ceyhan, Turkey, ceased.

Sources:

  • "Iraq Gives Oil Markets Jolt" by Tod Nov. 22, p.7
  • "Active Fund Buying in Oil Markets, US Refiners Scramble" in the same issue, p.3
  • Tod Nov. 22 and same issue p.7 and p.3