Iraq Vows to Boost Crude Production as Challenge of Clearing Global Inventory Glut Persists

Iraq plans to pump 5 million barrels per day by the end of this year.

In the wake of the Organization of the Petroleum Exporting Countries (OPEC) admitting that the global glut has grown instead of shrinking because production from a variety of nations has overwhelmed its reduction efforts, Jabbar Al-Luaibi, oil minister for Iraq, told media on Wednesday that his country plans to increase output to 5 million barrels per day (bpd) by the end of this year.

The ministry is reportedly negotiating with Exxon Mobil Corp. to develop the Ratawi and Omar oil fields, which together can produce 500,000 bpd; plus, Missan Oil, another producer in southern Iraq, wants to increase its current 385,000 bpd output to 700,000 bpd.

Iraq is already pumping full tilt, to the tune of 4.57 million bpd in February, and presumably the recovering U.S. shale industry is the motivation, as insinuated by Al-Luaibi when he told reporters that the increase in shale oil poses "a challenge" to his country.

As has been the case with other countries that have either ignored or not lived up to their cutback agreements under the OPEC deal, Asim Jihad, the spokesman for the Iraqi oil ministry, released a statement saying the country is committed to OPEC's agreement to pare output to control global oversupply and support prices.

The news from Iraq was somewhat tempered by the disclosure on Wednesday from the Energy Information Administration that U.S. crude inventories fell by 237,000 barrels last week, the first weekly decline since December.

The market responded with West Texas Intermediate rising by $1.14 to settle at $48.86 per barrel, and Brent rising 89 cents to settle at $51.81 per barrel.

Michael Loewen, a commodities strategist at Scotiabank, said, "This happened a lot sooner than most of us were expecting, the crude oil draw, which was mostly due to net imports being substantially lower."

Carl Larry, principal consultant for Oil Outlooks and Opinions LLC, expressed equal enthusiasm for the near future: "Rates are going up because the economy is getting better, [and] that means demand is also going to be higher, too.

"So, once refineries start picking back up, we're going to see a lot better demand and oil prices should be supported, at least in the next month or two."

Still, an International Energy Agency report released Wednesday stresses that the global glut is still very much with us and proving to be a lot tougher to clear than initially thought, with stockpiles across developed nations increasing in January for the first time in six months after OPEC nations relentlessly raised production while finalizing its agreement to cut output.

The IEA predicts a smaller drop in inventories during the first half of 2017 amid a weaker assessment of demand growth, despite OPEC insisting that growth will absorb oversupply in the foreseeable future.

Erik Britton, director at Fathom Financial Consulting, told Bloomberg that "my hunch is the [reduction] deals struck by OPEC...will not be stuck to, if the past is any guide" - which, if proven correct, could mitigate the absorption that OPEC is pinning its hopes on.

OPEC earlier this week in its monthly report admitted that "Despite the supply adjustment, stocks have continued to rise, not just in the U.S., but also in Europe" - but it added that "Nevertheless, prices have undoubtedly been provided a floor by the production accords."