Iraq has "Thrown A Spanner In The Works" Of the OPEC Output Deal: Energy Aspects

Energy Aspects says a stymied deal could mean oil below $40 by year end.

While some critics have worried that the Organization of the Petroleum Exporting Countries' (OPEC) agreement to cut production could be scuttled by Iran's determination to boost output, one analyst thinks an even greater threat is lurking, courtesy of Iraq.

Amrita Sen, chief oil analyst at Energy Aspects, told CNBC that "Iraq has already thrown a spanner in the works which we've been highlighting as well, and that is a risk at the moment."

Sen's comments follow news that OPEC's second biggest producer had this month invited an array of organizations and media groups to the country to assess its oil production levels.

More troubling still is the disclosure from OPEC sources that Jabar Ali al-Luaibi, oil minister for Iraq, was displeased that fellow members had agreed to an output ceiling; he also reportedly questioned OPEC's method of calculating production figures and said they underestimate the size of his country's output.

If nothing else, these new fears support the growing consensus that the deal reached last week in Algeria – as well as its efficacy - is shaky at best.

Bloomberg notes that in addition to Iraq and Iran, Nigeria declared itself exempt within hours of the deal being reached – and that Gunvor Group Ltd. doesn't expect prices to climb much higher than $50 per barrel, based on the difficulty OPEC faces in curbing output.

David Fyfe, head of research for Gunvor, stated, "I'm not at all confident that they can remove a million barrels a day from the market straight away"; he pegs 2018 as the earliest when crude could make substantive gains.

While Fyfe predicts that global inventory will continue to be a market issue until the middle of next year, Sen thinks the chances of OPEC members following through on their agreement is 50/50 and that $50 oil could be fleeting.

She said, "If they don't come up with a deal, OPEC production will remain at record levels and the rebalancing is going to take a lot longer ... and prices could go down to below $40.

"Imagine if we get a mild start to the winter and OPEC don't cut, there's going to be some real risk to the downside for prices by year-end."

Valentijn van Nieuwenhuijzen, head of multi-asset strategy at NN Investment Partners, summarized the sentiment of the analytical community by remarking, "We've been here so many times and even if there is a deal, will they, in reality, comply with the production numbers that they formally agree upon?"

He added that the deal for now is merely a verbal agreement and that OPEC is "still quite likely to disappoint."

That may also be the view held by Russia, which last week maintained its previous outlook that oil will average $40 in the next three years – despite oil climbing to near $50 in the wake of the OPEC agreement.