Iraq, Not Saudis, Earmarked As The Likely Heavy In The September Freeze Talks

Bloomberg's Julian Lee says Iraq is in full-tilt expansion mode.

As the September date for the Organization of the Petroleum Exporting Countries' (OPEC) freeze talks draw nearer, another analyst has predicted their failure – but not due to proven gadflies like Saudi Arabia or Iran; instead, Iraq has been earmarked as the culprit.

Writing for Bloomberg, Julian Lee, oil strategist for Bloomberg First word, reasons that the Saudis are already pumping at record volumes, and given their kingdom's domestic demand will begin to fall in line with its normal seasonal pattern in September, "freezing output at a seasonal high point is much more attractive than doing it at the seasonal low."

In Iran's case, the Islamic republic's growth to near pre-sanction levels will likely continue until it reaches the 4 million barrel per day mark by the end of next month, "And if its production reaches a point where it can't be raised further without significant investment and a long lead-time, it might, just might, agree to a freeze to call the Saudis' bluff," theorizes Lee.

On the other hand, Iraq is in the early stages of aggressive growth, with that nation's oil minister, Jabbar Al-Luaibi, asking oil companies operating in the south of the country to revive spending plans and  boost output; Lee writes, "The results won't be immediate, but they could come soon enough to conflict with any undertaking by Iraq to freeze production at the current level."

Lee's remarks coincide with Iraq once more proving its determination to prevail in the international market: Reuters reports that  Iraq's State Oil Marketing Organization will consider selling its crude through Iran should impending talks with Turkey fall through.

Fayadh al-Nema, deputy oil minister for Iraq, told the news agency, "We will start to find a way in order to sell our oil because we need money, either to Iran or other countries."

For his part, Lee doesn't hold any false hope that his insight will gain traction in the trading world: "This won't stop others in OPEC from continuing to promote the idea of a freeze; nor will it prevent the oil price from jumping on every hint of a deal, no matter how absurd.

"Just don't expect to wake up in late-September to a world in which OPEC and Russia have reached a credible agreement on a cap."

True to Lee's word, OPEC members Venezuela and Iran seem bent on some sort of freeze taking place, with officials of the two countries meeting over the weekend to determine ways to stabilize the oil markets.