OPEC resistance to Saudi supply plan grows with Iraqi defiance

By Grant Smith and Nayla Razzouk on 6/11/2018

LONDON and DUBAI (Bloomberg) -- Iraq said OPEC should resist pressure to increase oil supplies, strengthening opposition to plans by Saudi Arabia as the group prepares to meet next week.

OPEC’s second-biggest producer said supply curbs by the cartel haven’t yet achieved their purpose, with oil prices still below the desired level. Its defiance follows similar resistance from Iran and Venezuela, meaning three of the five countries that founded OPEC now oppose the Saudi plan.

The U.S. has reportedly asked Saudi Arabia and others to relax output restraints put in place in early 2017 as prices near $80/bbl pose a threat to economic growth. Last month, the kingdom and partner Russia proposed increasing supplies later this year, without first consulting OPEC members.

“Producers from within and outside OPEC have not yet reached the goals set,” Iraqi Oil Minister Jabbar al-Luaibi said in a statement. Iraq “rejects unilateral decisions made by some producers which do not consult with the rest.”

The Organization of Petroleum Exporting Countries will meet with its partners on June 22-23 in Vienna. Iran and Venezuela -- both subject to U.S. sanctions -- have written to fellow OPEC members urging unity against American pressure. Both producers stand to lose market share if Saudi Arabia and Russia open the taps.

Iraq faces both technical constraints on boosting supply and a political clash with its Kurdish population that’s impeded exports, and so may have little to gain from any OPEC agreement to raise production.

“We shouldn’t exaggerate the need of the oil market for more oil at the present time, and which could cause great damage to global markets," Luaibi said.

Nevertheless, it’s unclear whether Iraq, Iran and Venezuela could do much to block the Saudi-Russian plans. Although OPEC’s rules require that decisions are made by consensus, there’s nothing to stop Saudi Arabia and its Gulf allies simply raising output in concert with Moscow.

Russia, despite its political connections with Iran and Venezuela, appears to be in the process of raising supply already. The country pumped 11.09 MMbpd in the first week of June, according to a person with knowledge of the matter, exceeding its agreed limit of 10.95 million.

Saudi Arabia has enjoyed diplomatic ties with the U.S. for decades, and may be facing strong pressure to temper oil prices as President Donald Trump targets Iran -- the kingdom’s political rival -- with sanctions.