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Analyst: Individual quotas needed for effective OPEC oil cut

Oil&Gas Materials 28 October 2016 11:31 (UTC +04:00)
A refusal by Iraq to cut or at least freeze its oil production would be a major stumbling block.
Analyst: Individual quotas needed for effective OPEC oil cut

Baku, Azerbaijan, Oct. 28

By Leman Zeynalova – Trend:

A refusal by Iraq to cut or at least freeze its oil production would be a major stumbling block, Emma Richards, oil and gas analyst with BMI Research told Trend Oct.28.

Earlier, Iraq's Oil Minister Jabar Ali al-Luaibi said his country should be exempted from OPEC’s oil output restrictions as it was fighting a war with “Islamic State” (IS, aka ISIS, ISIL or Daesh) terrorist group.

“Strong growth in production in Libya and Nigeria is also causing complications, as it requires a greater cut from other members to meet the target of 32.5-33 million barrels per day,” said Richards. “It is likely that they will need to raise the target, given the jump in production over September and October.”

However, the analyst doesn’t think that Iraq’s refusal to cut the oil output will have a domino effect.

“It appears that Iran, Libya and Nigeria will all be offered some form of exemption from the cut,” she said. “Venezuela could argue its case for an exemption on economic grounds, but its output is anyway in decline. It has also been the strongest proponent for a cut and is unlikely to want to risk the deal breaking down.”

As for the possibility of setting a mandatory system for oil output by OPEC, Richards said that for a cut to be effective, individual quotas will need to be assigned.

However, the history of compliance with quotas is very poor and OPEC has no means of enforcing them, according to the analyst.

“In my view, the impact on the global balance of supply and demand of any agreed OPEC cut will be relatively muted, she added.

In September, OPEC producers agreed during the informal meeting in Algiers to cut down the oil output to 32.5 million barrels per day (bpd) from current production of 33.24 million bpd.

How much each country will produce is to be decided at the next formal meeting of OPEC in November.

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