Iraq says oil prices at satisfactory levels, OPEC output likely to remain unchanged

By Sinan Salaheddin, AP
Monday, February 22, 2010

Iraq does not expect OPEC output changes

BAGHDAD — Iraq’s top oil official said Monday that oil prices are satisfactory and does not expect OPEC to make changes to output when it meets next month to review production for the first time since last year.

Oil Minister Hussain al-Shahristani told The Associated Press that the 11-member Organization of the Petroleum Exporting Countries will instead focus on lackluster member compliance with output targets.

“I don’t expect production levels of OPEC members will be reviewed in the next meeting,” al-Shahristani said. “Instead, OPEC will ask some countries to adhere to their output targets.”

The group of oil producing nations has been struggling to engineer a sustained rebound of the price of oil since it collapsed in mid-2008 from a record high of almost $148 per barrel to the low-$30s just months later.

In a bid to reign in plummeting prices, OPEC announced a series of production cuts in the second half of 2008 that lowered oil output by 4.2 million barrels per day. The group, which meets March 17 in Vienna, is grappling with member compliance at slightly below 60 percent.

Al-Shahristani said that although current oil prices are encouraging, “$80 per barrel is absolutely not a high level.”

Al-Shahristani spoke with The AP in his Baghdad office a few hours after benchmark crude for March delivery was trading at $80.32 a barrel in the late afternoon Singapore time in electronic trading on the New York Mercantile Exchange.

Iraq has been hard hit by falling oil prices in recent years. Al-Sharistani said that if current oil prices hold, Iraq would not face some of the problems it has in previous years when plummeting prices forced the government to slash its budget.

This year’s budget of $72.4 billion is a 23.5 percent increase from the 2009 edition. It is based on the projected cost of $62.5 per barrel and an expected average export of 2.15 million barrels per day.

Iraq, which sits on the world’s third largest proven reserves of at least 115 billion barrels of oil, is pushing to increase production. It awarded rights last year to a number of international oil companies to develop 10 oil fields with the aim of boosting output to more than 12 million barrels per day within six years.

Such production — viewed by some analysts as unrealistic in that timeframe — would rival Saudi Arabia, which currently produces over 8 million barrels per day but has the capacity to exceed 12 million barrels per day.

But al-Shahristani defended Iraq’s production targets, saying it would slash the fee paid to those companies that did not meet their contracted production targets. He also said the ministry is developing a plan to construct new pipelines nationwide and four floating oil platforms that could handle 4.5 million barrels a day by mid-2011.

He said Iraq has no plans in the foreseeable future to open any more existing reserves and instead will focus on exploration of new oil reserves.

Meanwhile, Baghdad has begun negotiations with the northern semiautonomous Kurdish government to resume oil exports, which began last June and then halted in October after Baghdad refused to pay the developers, al-Shahristani said.

The Kurdish government and Iraq’s central government have been at loggerheads for years over nearly two dozen production sharing contracts that the Kurds signed independently with foreign firms, a move that Baghdad considers illegal.

Al-Shahristani said Baghdad will only pay the companies the cost of the work they have done. He said the companies will not share in the profits despite a contract that stipulates they are entitled to a portion of the oil produced.

He did not say when the estimated 100,000 barrels per day in the Kurdish region would resume export, saying only “it will be in the near future.”

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