Such is the concern of conflict spread from Gaza/Israel that oil prices were not only able to ignore some quite negative news flows but rallied in the face of them. Even the most ardent Israel supporter must question the voracity of its ceasefire intentions after what must have been a targeted airstrike aimed at a Hamas leader that killed members of the family. Accelerating the fear of a wider theatre of war came from the United States. President Biden yesterday warned of a significant Iranian attack and promised Israel ironclad US support. Arguably, Iran does not have the military capability to launch a direct offensive, but its funding and significant interest in proxy allies such as Hezbollah is likely to be the source of any retaliation for the attack on the Iranian consulate in Damascus.

Away from the geopolitical grip, oil would normally have felt the icy breath that blew through the wider investment suite as the US CPI came in hotter than expected and all but blew to smithereens the idea of a rate cut in June and probably even July from the US Federal Reserve. It was only last week that the FedWatch tool was pricing a cut in June at 60%, but all that has now shifted forward yet again to September. What is more telling is that no cut at all in 2024 has repriced from a negative state to 14%. Sticking with inflation, China’s CPI and PPI readings missed expectations at 0.1% and -2.8% respectively and keeps China’s economy firmly in the grip of deflation and will again curtail the idea of impending oil demand. Even across-the-board builds in the US oil inventories; Crude by 5.8mb, Gasoline by 715kb, Distillate by 1.66mb and product demand diminishing by 2.06mb are enough to keep the Middle East fear rally contained.

How do you solve a problem like Iraq?

It is a rather amusing mental vignette to imagine OPEC+ members singing along to the famous strains of the sisters in ‘The Sound of Music’ and apply the song about a wayward ‘Maria’ on how the cartel can manage to coax Iraq from its continued path of cheating on its oil production quota. At no point in the convening months of this year, since the supposed inception of voluntary cuts in January, has Iraq complied to its 4 million barrels per day quota. It does not take much of a cynical eye to observe how Iraq are often called as a willing cheerleader to the OPEC+ policy only for production statistics, ship trackers and all manner of analysts to pour scorn on what is frankly lip service to the parameters it is supposed to institute as a member of what has been recently an embattled group of producers.

Bloomberg data has that Iraq consistently broke quota for the last nine months, but where the proof of its intention or at least laissez faire approach might be, is how Iraq’s overproduction increased from January when OPEC members were left to self-police and self-report on compliance. Having already been 200kbpd over quota in the very first month, Iraq said in February it would review its production and address any excess output above its OPEC+ cuts. However, the non-compliance with quota is predicted and ultimately verified by the state of crude exports. In January exports on average were 3.339mbpd according to data from Iraq Oil Report. Outflows increased in February to average 3.434mbpd, according to the Oil Ministry, and saw only a very slight decrease in March to 3.423mbpd. Such continued high oil movement abroad then confirms that production was unchanged at 4.2mbpd in February and 4.17mbpd in March, sizably busting the country’s agreed limit. Oil Minister Hayyan Abdul Ghani last month said the country would trim both output and exports, after breaching its production quota in January and February, therefore the data outlined here makes something of a mockery of such pledges.

The trouble is that Iraq’s economy is absolutely entwined with its oil industry. To say that income is oil dependent is something of an understatement as the Iraqi government relies on oil for more than 90 percent of its revenue and this addiction is manifest in how the state is present in all parts of everyday life and employment. The terrible strife and trials of elongated wars on Iraq’s soil has seen incredible decrepitude, forcing parliament to approve a huge $153 billion budget. At the passing of the bill last June, and reported on Al Jazeera, Deputy Speaker of the Iraqi Council of Representatives Shakhwan Abdullah Ahmed said in a statement: “Basic services must be secured, infrastructure rehabilitated, employment and work opportunities provided, affected areas reconstructed, and the suffering of displaced people ended.” With such public finance debt to service and a burgeoning public sector, Iraq has little manoeuvrability on any self-sacrifice involving oil revenue.

Being the second-largest producer in OPEC and the sixth largest in the world does not guarantee wealth, particularly if the exchequer needs every dollar per barrel to stay ahead of public finances. Iraq needs the Saudi ‘tightening’ plan to work. It will become easier not to cheat if oil prices continue in an upward state offering more bang for the buck for the barrel. Saudi for its part has a narrow path when trying to keep Iraq in order, it really does not want an OPEC-free Iraq helping itself to quota and customers. Yet, there are other layers of intrigue that will keep Iraq on the naughty seat. Another trinity of blame, namely Turkey, KRG and Iraq, arguing over the Kurdistan Workers Party (PKK) and the International Chamber of Commerce ruling on damages, keeps northern pipelines dry. If this mess is ever sorted out, and at the very least another 400kbpd of Iraq responsible crude returns to market, how Iraq can carry on in bamboozlement of data will be impossible. Gabon and the UAE currently join Iraq as quota busters, but without the longevity or probably the same scrutiny. Iraq must be hoping for a very bullish OPEC Monthly Oil Market Report (MOMR) today and with it maybe some relief in having to play loose with its promises. How do you solve a problem like Iraq? Not very easily.

Overnight Pricing

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