Iraq Slashes Projected Crude Output By Half Over Next 5 Years

Tyler Durden's picture

And another huge hit to future oil supply. After Goldman released a report on Friday, backtracking on its April recommendation that clients sell crude, instead warning that "critically tight supply-demand fundamentals" will likely cause oil prices to "return to or
surpass the recent highs by next year", "should Libyan oil supplies remain off the market", which it now appears they will considering Gadaffi is winning the Libyan civil war against the West-backed rebellion, here comes a stunner out of Iraq which has just slashed its 2017 oil production estimate from 12 million barrels to just 6.5-7 million bbpd. Oddly enough, Iraq is being rational: "Baghdad believes it would not be in its interests to try to achieve the
12 million target by 2017 because boosting global supply would depress
." Who would have though a cartel would think of itself first... Surely, this is great news for Saudi Arabia which will promise to hike oil production and replace the missing output only for it to be discovered a few months later that not only did it not to do that (as we just discovered now following the whole Libya fiasco), but that it just does not have the excess capacity. And, of course, "speculators" will be blamed once they take WTI from $97 to $140 daring to discount the future price of oil in a (inflationary) world in which demand increases by 50% over a decade, even as supply continues to trickle down with each passing year. In other words, the CME margin hike crew is actively studying how many margin hikes it will take to break the back of the recently record number of non-commercial net specs... for at least a week or two, especially once the Chairman goes to town with the printer Turbo button. And elsewhere, the upcoming scarcity of lubricating petroleum byproducts is about to be felt through the entire supply (and demand) chain.

From The Australian:

The country's Oil Ministry, with backing from the Prime Minister Nouri al-Maliki, will set a new target to produce between 6.5 million and 7 million barrels per day by 2017, down from original plans to pump 12 million barrels, according to industry insiders.

Iraq, which is a member of the OPEC cartel that pumps 40 per cent of the world's oil, produces about 2.68 million barrels a day, barely higher than under Saddam Hussein.

It had been hoped that with a huge injection of foreign investment, it would be able to challenge Saudi Arabia as the world's biggest oil exporter this decade.

Confirmation it has scrapped the old target will add to fears that global supply will be unable to keep pace with demand in coming years.

As usual, the 'conspiracy of optimism' got the better fo everyone. And we can't wait to see if the Libyan, Siryan and Yemeni problems spread to Iraq... and/or Iran.

It is understood that government negotiations to change the long-term service agreements signed by companies in the past two years based on the old production target will begin soon.

Analysts said companies would seek improved terms to compensate them for losing out on revenue, which at present is earned for each barrel of oil produced above a base target.

Baghdad believes it would not be in its interests to try to achieve the 12 million target by 2017 because boosting global supply would depress prices.

No demand?

Ministers also argue that there is not sufficient demand for the extra oil, despite soaring prices. Last month, Saudi Arabia cut its output by 800,000 barrels a day after pumping more in response to the political crisis in North Africa, complaining that the extra crude was sitting in tankers with no customers.

High oil prices, which have doubled since the 12 million target was set two years ago, will compensate Iraq for the lower production. Ministers also recognise that creaky pipelines and storage facilities could not cope with such an increase.

The International Energy Agency estimates that investment of more than $US160 billion ($149bn) would be needed to meet the target.

So perhaps the Chairman was not lying that the end price of commodities is determined by supply and demand. The only qualifier is that while crude will surely have a $2 handle and three digits in it in several years (forcing inflation to spike far higher than where it is now in order to offset the pricing impact on the broader population), in the interim volatility in commodities will surge to unprecedented levels (as we expected back in the fall of 2010) as it takes our speculators on both bullish and bearish extremes, invites in the HFT crew to make price swings even more ridiculous, and forcing the Fed to step in and take over this vertical that it still does not control, after already having taken charge of the fixed income and equity markets. And with that, the last pseudo-unmanipulated product will succumb to central planning.

h/t Escape Key

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Hammer Time's picture

peak oil is so 2005

Ruffcut's picture

peak cheap oil is the new vogue.

Pay at the pump bitchezzz.....

Oil is the trigger to all things inflationary, war, currency flucks, etc.

Gold and silver, don't mean shit here except against ponzi fiat.

Flakmeister's picture

  Peak oil is ultimately deflationary, as is the rising cost of oil. Forget fiat, look at the Gold to oil ratio....

Flakmeister's picture

I won't quibble with you.... It must be ultimately deflationary as an increasing fraction of disposable income is required for basic energy needs...

traderjoe's picture

The ultimate collapse will be a bitch.

knukles's picture

So I should call my wife ultimate collapse?  'Cept she argues.

hedgeless_horseman's picture

Who needs oil when we have mint juleps to lubricate the joints and fuel the mind?


trav7777's picture

Flak, depends upon what you mean by that...oil supply decline means that debts predicated upon a future of expansion aren't worth par.  That is devaluationary, if we use monetarist definitions of inflation and deflation.

Any debt simply has to be discounted against the reality of a future of less.  That includes the FRN.

Iraq won't get to 6mbpd by 2017 either...that's a mere 6 years away.

There goes 6mbpd of "expectations" right the fuck up in smoke.  IEA is going to have to adjust again.

Flakmeister's picture

No real argument here, I equate devaluation of future obligations to be deflationary. You do agree though that loss of disposable income is deflationary.

So maybe I didn't state it correctly. But, hey, I never took economics, I was too busy learning useful information....

Re: 6 million, yeah, probabaly a pipe (line) dream. I do not doubt they will bump it up a bit though. Too little, too late...

Worker Bee's picture

Entropy is the Law.

Entropy by defintion is deflationary.


j0nx's picture

There's that 'D' word again here on ZH. Heretic, Heretic!...

PulauHantu29's picture

But...but..."you can't eat oil!"


It's all 'bout PMs and oil...hold tight and prosper.

traderjoe's picture

IMHO - pm's are not held to 'prosper', they're held to maintain, to preserve, and to make it through to the other side. Fellow citizens will be much less likely to accept pm's as money if they are enriching a new set of 'elites'.

cossack55's picture

I think he meant prosper as in "continue to live".

traderjoe's picture

Perhaps. But I get tired/wary of all of the excitement around here with how 'rich' people are going to get with their pm's. I believe a reset is inevitable and that pm's are a core aspect of preparation. But I have no illusion that the reset won't be really painful. And that in many ways, these are the 'good times'.

PulauHantu29's picture

cossack, you are 100% correct! Gold will allow you to maintain wealth in realtion to the rapidly expanding money supply and loss of purchasing power of the dollar (and most other paper currencies). I don't plan on getting wealthy from it, but I just want to be able to enjoy a Snickers Bar, bowl of berries, etc. Look at what the dollar will buy today? A 12 ounce "pound cake" that used to be guess what, A Pound!


GL! to all bag holders...unless they work on Wall Street and are getting one of those $800,000 Bonuses at GS, they need to think and is the key to survival.

Manthong's picture

Better to hold those reserves until they can be revalued in whatever the SDR mix is to replace the dollar. Iraq certainly doesn't owe anything to Americans after what they've done to the country. 

topcallingtroll's picture

SDR transition start date 2022. Full implementation 2028.
Count on it.

i-dog's picture

There'll be nobody left with any money in Amerika by then (just the FEMA camp guards).

Hephasteus's picture

Everytime I try to start a 5 million man oil sucking army that uses more oil than a country of 150 million people they go and pull this shit.

At this rate all I'll be able to do is mount a mini gun in the trunk of my camry and weld some steel plates on it. The man is always keeping me down.

mynhair's picture

A Camry trunk has room for a minigun?  Wow!  Better get me one 'o those smoking 20MM quads for the back of my Escape hybrid.

I am Jobe's picture

And the hits keep on coming for the USA. Keep chanting USA USA in big deep shit

Weisbrot's picture

the bears may have something to say about that........

css1971's picture

It's all the same problem. Just the 1 cause.


cossack55's picture

Margin Hike Bitchezzzz!!!!!

lettuce's picture

is this iraq's big "F U" to the USA?

friendly manitoba's picture

 iraq thinking about " capturing the 700 mil  cu ft of natural gas it flares at its oilfields each day "  ...  found that startling 

hedgeless_horseman's picture

Pipelines through Turkey have been more of a bugaboo than Russia transporting through Ukraine. 

Missiondweller's picture

I would call it just one of many FU's to the US, and I live in SF, USA.

uhb's picture

I guess the price of oil without financial investors would swing somewhere between 75$ and 100$ pb. Swings above and below are extremes added by the everlasting fight of bulls & bears

FunkyMonkeyBoy's picture

You can't output want you ain't got.

Muir's picture

So which is it?

"Ministers also argue that there is not sufficient demand for the extra oil, despite soaring prices. Last month, Saudi Arabia cut its output by 800,000 barrels a day after pumping more in response to the political crisis in North Africa, complaining that the extra crude was sitting in tankers with no customers."

Flakmeister's picture

  There is a grain of truth in the Saudi statement. The world refining capacity for Arabian Heavy is well supplied. Now those refineries that need lighter sweeter crude are running below capacity because of a lack of feedstock...

trav7777's picture

KSA also may have been employing surge production capacity for this extra 800kbpd.

This would not be the first time they've ramped into a spike and then backed off.  They are likely in decline, thus flat out in terms of production.

Flakmeister's picture

Wondering when your smiling face would appear...

Yes, they are masters of managing their ~60 million barrel tank farm.

They ain't altruistic but all things being equal their management of "The Precious" has been fairly even handed....It could have been in worse hands.

Mec-sick-o's picture

Better get used to sour crude oil.

knukles's picture

After all that shit all we get's a pile of dirt?
Maybe if we all hold hands and sing Kumbaya?

f16hoser's picture

This should help the Iraqi Dinar revalue to $3.00+


hack3434's picture

Oh no!! The Dinar bugs are back. 

Holodomor2012's picture

You can call me anything you want.  Just don't call me late for dinar.

Muir's picture

Waiting for someone to say that this is bullish for silver.

lettuce's picture

you see, with the additional long term revenue that iraqis will receive, they will be able to reinvest the proceeds of oil sales into their seventy-third most loved asset - silver jewelry. so you see, buy silver. clearly.