According to the US Energy Information Administration (EIA), until recently Iraq had provided a stabilizing influence on oil markets, helping to offset high levels of OPEC supply disruptions. These disruptions exceeded 2.6 million bpd in May.
Recent production growth caused Iraq to surpass Iran as the second largest producer in OPEC, after Saudi Arabia. Production continued to climb in 2014, reaching 3.3 million bpd in May, 150 000 bpd higher than May 2013, but fell 0.2 million bpd following this date due to conflict in the region. Iraqi exports followed production higher, averaging 2.5 million bpd during the first five months of 2014, the highest volume in more than three decades.
The EIA explains that Asia has been the primary recipient of increasing Iraqi crude exports. During the first five months of 2014, approximately 60% of Iraq’s 2.5 million bpd of crude exports supplied Asian markets, with China (25%) and India (20%) the largest customers. The US was the third largest importer of Iraqi oil, importing 12%, approximately 300 000 bpd. According to the EIA, US imports of Iraqi crude have historically been concentrated on the Gulf Coast (PADD 3). However, infrastructure improvements and rising US domestic production have reduced demand recently, shifting Iraqi crude to refiners along the West Coast.
Looking forward, the EIA expects Saudi Arabia to maintain a higher production level through 2015 to offset the loss of production growth in Iraq. For 2015, Saudi Arabia’s annual production is still projected to decline to accommodate growing output in non-OPEC countries, albeit at a lesser extent than previously forecast because of lower growth in Iraq.
As a result, EIA anticipates that OPEC surplus crude oil production capacity, which is concentrated in Saudi Arabia, to average 2.0 million bpd in 2014 and 2.7 million bpd in 2015, 0.2 million bpd and 0.8 million bpd, respectively, lower than the forecast in the June STEO. With lower surplus crude production capacity and higher risk of supply disruption in Iraq, EIA forecasts North Sea Brent to average US$ 110/bbl in 2014 and US$ 105/bbls in 2015, US$ 2/bbl and US$ 3/bbl higher, respectively, than projected in last month’s STEO.
Adapted from a press release by Emma McAleavey.
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