Iraq Set to Lead Massive OPEC Production Increase as Cartel's Secretary General Says 'So Far, so Good' on Oil Deal

Iraq is reportedly adding 700,000 bpd to reach 5.4 million bpd in 2022

Delivering what is arguably the biggest proof yet of the ineffectiveness of the Organization of the Petroleum Exporting Countries (OPEC) oil reduction initiative, the International Energy Agency (IEA) has revealed that it will raise output capacity by 1.95 million barrels per day (bpd) from 2016 to 2022 - more than double what was previously thought, with Iran and Iraq leading the charge.

OPEC is reportedly building capacity in anticipation of higher demand, with Iraq adding 700,000 bpd to reach 5.4 million bpd in 2022, and Iran expanding capacity by 400,000 bpd to reach 4.15 million in 2022 (assuming the accord that lifted international sanctions against the Islamic republic isn't quashed by U.S. president Donald Trump).

The ramifications of this huge increase are unclear, but for the meantime, demand for oil is said to reach 33 million bpd in 2018, and Bloomberg points out that "Even if Saudi Arabia, OPEC's biggest member, continues its policy of holding back some output for emergency use, the IEA's data point to considerable excess capacity next year."

If nothing else, the IEA's findings should resurrect the now moribund argument among analysts that the OPEC cuts are too small to have any meaningful positive impact on the market, and that the cartel agreed to them to protect the ailing economies of its members rather than eliminate the global glut - which OPEC insisted was the case when it ratified the agreement last year.

However, Mohammad Sanusi Barkindo, secretary general for OPEC, continues to assure the press that all is well with the reductions - although on Monday he stopped short of claiming they were rebalancing the market.

Instead, he told reporters, "It depends who you talk to and it depends on what inventories you are looking at.

"But overall, I think so far, so good; inventories are responding if you look at both onshore and offshore inventories."

Barkindo also said it was premature to say whether his organization and non-members will extend their cuts beyond June: "When we meet in May, we'll be able to look at the numbers and see where they are; we are talking about stock levels and stock draw downs ... to what extent we achieved our [goal]."

But even Barkindo's vague claim that the cutbacks are proceeding smoothly seems to ring hollow - at least for John Kilduff, founding partner of Again Capital, who told CNBC, "It doesn't appear that the Russians are rushing to live up to the obligations they signed on for."

He went on to say that "I think they're going to go their own way, ultimately; I don't see them sticking to the program."

As a result, he predicts oil will drop again to the November lows of $42 per barrel.

Kilduff even went so far as to say that Saudi Arabia's scheme to sell Saudi Aramco - which prompted the Saudis to take a leading role in the cutbacks in the hopes of boosting oil prices and therefore the value of the Aramco IPO - may be abandoned.

That's because the cutback efforts have failed to produce the numbers the Saudis had hoped for, and reportedly they are facing only half of the $2 trillion they had expected from the sale.

Kilduff said, "So where's their incentive to try and hold up prices when they can just break the backs of the higher cost producers again?"

Last week, Emmanuel Ibe Kachikwu, oil minister for Nigeria, outlined another problem facing OPEC when he stated, "OPEC members must lower production costs to compete better with [U.S.] shale producers."