International Energy Agency (IEA) data show a moderate growth of oil demand, mostly driven by the upturn of OCSE countries consumption, and a continuously growing oil supply, fostered by the production of non-OPEC countries (US shale oil). The net effect of these forces results in a downward pressure on the barrel price.
In the “Oil Market Report” released by IEA in July, the Agency describes as unlikely a growing trend of the barrel price for the rest of 2015 and the beginning of 2016. This is due to a forecasted decrease of the oil demand that, after having reached is peak in the first quarter of 2015 at 1,8 mb/d, will settle at 1,2 mb/d.
The economic frame is conditioned by three important political factors: OPEC decision not to adjust the production target established at 30 mb/d in 2011; the uncertain situation in Iraq and Libya due to IS threat; the Agreement on Iran’s Nuclear program which could open the doors of the oil market to the Islamic Republic.
Within this general overview, the Minister of Oil of Iraqi Republic, Abdul al-Mahdi, announced in July the oil sales data of the first half of 2015: the State Organization for Marketing of Oil (SOMO) sold 530 million of oil barrel amounting to $26 billions and 700 millions.
In synergy with the more important oil companies operating in Iraq, the Ministry of Oil has progressively increased oil production from 2,4 mb/d in January to 3,2 mb/d in June. This result was obtained despite the loss of the Beiji refinery in April (currently under the control of government forces, but its efficiency is to be assessed).
This positive trend was achieved in spite of the difficulties of the Federal Government in giving implementation to the agreement with the Kurdish Regional Government (KRG). As a consequence, the KRG sold directly on the international market in June almost 400 hundred thousand barrels.
This great achievement constitutes a step towards becoming the second oil-exporting country of the OPEC nations after Saudi Arabia. But the increase in oil production was reached through an increase of the productive base that is hard to sustain in the future, without long-term investments on oil facilities. Furthermore, the results in terms of incomes risk to be further undermined by the latest decrease of the oil price.
The balance sheet problems of Iraq could worsen in the future. The effort to maximize the capacity of the oilfield and to increase the short-term output has not filled the deficit in the balance sheet. This was due to an overestimation of the sales price of oil in the Budget Law approved at the beginning of the year. The oil revenues account for about 90% of the Iraqi balance sheet.
In July, the “Oil Magazine”, ENI quarterly magazine, interviewed the Minister of Oil al-Mahdi. He was confident over the future evolution of the oil market, setting a very ambitious long-term target: to take the oil production to 6-7 mb/d in 2020. Al-Mahdi doesn’t look particularly concerned by the balance sheet problems; he said that they convinced the Ministry to “rationalise the production costs” and that they are “pushing the Government to cut expenses, especially the unnecessary ones”.
Meanwhile, after the aid provided by the Board in early June amounting to $830 million, the International Monetary Found approved Iraqi request of the purchase of $1.24 billion under the Rapid Financing Instrument to be channelled to the budget in order to deal with the balance of payments and the balance sheet imbalances.
