Iran OK With $25 Oil As Iraq Pumps Crude At Record Pace

Tyler Durden's picture

The precarious "game theory" equilibrium that worked for decades while OPEC was still a functioning cartel is unwinding before everyone's eyes. Just as Saudi Arabia accurately anticipated, the lower the price of crude goes, the more both OPEC members and their non-OPEC peers (especially shale companies funded by hundreds of billion in junk bonds) will have to produce in order to keep their budgeted revenues roughly in line (and keep creditors happy for the time being) in the process setting off an unprecedented wave of bankruptcies and production capacity declines, which take about 6-12 months after the price plunge to materialize. Case in point: the country formerly known as Iraq (and now better known as that region around the Tigris and the Euphrates that does not belong to ISIS) is pumping crude at a record pace and will continue to boost exports this year, its Oil Minister Adel Abdul Mahdi said.

Those who were rushing to buy Brent on its latest intraday Friday spike, and are wondering why it is back below $50, here is the reason: "The average for Iraqi crude output is 4 million barrels a day, which is a historical record,” Abdul Mahdi said at a news conference after meeting his Turkish counterpart, Taner Yildiz, in Baghdad. Exports from Iraq will rise to 3.3 million barrels a day this year, boosted by oil from the Kurdish region, Abdul Mahdi said.

Bloomberg reminds us that Iraq's central government reached an accord last month with the Kurds to allow increased oil exports through Turkey. Oil prices have fallen about 56 percent since June amid a supply surplus on global markets. That, and also unknown numbers of ISIS crude barrells being transported via illegal channels through Turkey and onward to unknown end-buyers, most of which operated shrouded in secrecy.

More from Bloomberg:

Iraq will ship 60 crude cargoes, equivalent to 3.3 million barrels a day, from the Basrah Oil Terminal in the Persian Gulf in February, according to a preliminary loading program obtained by Bloomberg News today. The whole country exported 2.94 million barrels a day in December, the most since the 1980s, Oil Ministry spokesman Asim Jihad said Jan. 2.

 

Exports from northern Iraq through a pipeline to the Turkish port of Ceyhan will average 375,000 barrels a day in the coming months, rising to as much as 600,000 barrels a day by April, Abdul Mahdi said. About 500,000 to 600,000 barrels a day of Iraq’s production is consumed locally, he said.

 

An agreement in December resolved months of feuding between Iraq’s Kurdish region and in the central government in Baghdad over who had the right to export crude from the semi-autonomous area. The deal allowed for as much as 550,000 barrels a day of oil to be shipped through Turkey from northern Iraq, including 250,000 a day from the Kurdish region. Iraq’s central government had previously threatened legal action against any buyers of crude produced in the Kurdish area.

One wonders how little it cost the Saudis to override any Iraqi objection to this deal, considering that this merely accelerated the endgoal so sought by the Saudis - the collapse of crude prices.

And speaking of collapsing prices, how much further can they drop? For the answer we go to Reuters which reports that Iran's oil minister said on Monday that there are no plans to call an emergency OPEC meeting to discuss prices. Bijan Zanganeh, in remarks posted on the oil ministry's website SHANA, called for increased cooperation among OPEC members to balance the market to ensure a reasonable oil price for investors and producers.

The punchline:

Zanganeh said that Iran's budget should be based on oil at $72 per barrel, but Iran could withstand lower oil prices. "Even if the oil price goes down to $25 a barrel, the oil industry will not be threatened," the Fars news agency quoted him as saying.

And there is that magin "$25" number again. For those curious to read more, here is our report from a month ago, "Oil May Drop To $25 On Chinese Demand Plunge, Supply Glut, Ageing Boomers."

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clade7's picture

Better get some aircraft carriers over there stat to protect the flow...

Latina Lover's picture

Oil at $25 per barrel will be a once in a century bargain.  I will be backing up the truck on futures.

Latitude25's picture

Any recommended futures for when the time is right?

MillionDollarBonus_'s picture

I say bring it on. America's consumer economy is impervious to oil price shocks, and as a net importer of oil we actually stand to benefit. Plus in my opinion fracking should be banned outright, and this price decline is doing god's work for the environement. 

smlbizman's picture

a country that is in complete dissary is sharp enough to run a central bank and oil fields....interesting...

Clint Liquor's picture

Why do I get the feeling this ends with Saudia Arabia being a smoking hole in the ground?

Middle_Finger_Market's picture

Has everyone forgotten the thoughts of ANOTHER...paper price may be down but everything comes at a gold price...hence repatriation....hence under cover dedollarisation....hence huge chinese imports...jeez guys connect the dots and dont forget wise words of unknown ledgends. Things are never what they seem. Middle east wants gold. 

smukster's picture

Sweet one. What's your "recovery" and your latest big bubble based on - pet food?

(completely agree that fracking should be banned worldwide! I really pity you and your children for that, honestly.)

J S Bach's picture

"Iran OK With $25 Oil As Iraq Pumps Crude At Record Pace"

 

A quick question...

How is it that when oil is extracted at a "record pace" thus flooding the market and making the commodity cheaper and cheaper, the same doesn't happen (immediately) to dollars as they, too, are flooding into the market at a "record pace"?  I think I know the answer, but what's holding the flood gates in place is what I don't fully understand.

FrankieGoesToHollywood's picture

There are many but one primary reason is the FED is paying interest on excess reserves of the big banks.  All the printed money has not made it into circulation.  Som fear that if the FED stops paying interest, the end is nigh.

 

Excess reserves:  http://research.stlouisfed.org/fred2/series/EXCRESNS

El Vaquero's picture

I.e. the Fed was flooding a very, very exclusive market that was closed off from us plebs, and the digital FRNs, for the most part, didn't make it to the markets at large.

explosivo's picture

I've wondered this myself. I'm no expert, but my thinking is that during growth periods of the economic cycle currency is inflated by commercial banks via the "money multiplier" effect. However since we have essentially been in depression since 2008 this effect is broken. The Fed is simply picking up that slack such that the overall currency isn't growing as much as we would expect. However more of the new currency is being funneled to those closest to power. 

 

I would love to hear everyone else's thoughts on this. 

Four chan's picture

the first users of fiat get the greatist benifits of it.

eddiebe's picture

Dude, I know you heard of it. Manipulation.

MalteseFalcon's picture

"America's consumer economy is impervious to oil price shocks"

You are a snarky troll that lampoons a certain idiot mindset, but there was real idiocy hidden inside the feigned idiocy.

Since when is a price decrease an 'oil shock'?

'Oil tax cut' is more like it.

Ghordius's picture

"Since when is a price decrease an 'oil shock'? "

the culprit for that is Nixon. He shocked us europeans, in August 15th, 1971. Problem is, the average American did not feel a thing, so he was a bit puzzled by that term, the "Nixon Shock"

then the 1973_oil_crisis came, and it was called "shock", too, as the "cause and the effect" were somehow (badly) connected

MalteseFalcon's picture

The Japanese felt the shocks as well and referred to them as the "Nixon Shokku".

Sometimes vassal states have to take the hit for the "team".

jiggerjuice's picture

Nobody is answering you. This isn't a trading website brah, it's a Doom Porn circle jerk. 

But it is a good question. Anyone? 

Something like this: http://www.investopedia.com/articles/active-trading/092414/how-buy-oil-o...

Except... what... call your broker and say "buy futures call options on crude on Nymex"? 

Assuming what, 45 bucks a barrel now... Why not place two orders. Long dated... So the bitches don't expire... Let's say one year... One bet going down one bet going up. It will go to 25 or 100 in a year, so you'll bank on your double bet. What is this called... straddling? Long dated straddling? 

http://www.investopedia.com/terms/s/straddle.asp

You could even win twice, since it should go down a lot and THEN up a lot. Exercise when oil bottoms out, and then exercise the other one when it tops out in a year. 

MillionDollarBonus_'s picture

My only worry is that cheaper oil prices will discourage governments from investing in green technologies. We've made so much progress in the fight against climate change over the last 10 years, and it would be absolutely disastrous if this caused us to lose momentum and continue to rely on oil as our primary energy source. 

mayhem_korner's picture

 

 

I'm hoping Ford can start up its Excursion assembly line again.  Really miss seeing those battleships parading around the highways.

MalteseFalcon's picture

Since the electric cars coming out this year are 3X energy efficient compared to gas-powered cars, the price of oil will have to drop below $30 barrel.

And stay there.

mayhem_korner's picture

 

 

Don't you know sarcasm when you hear it? - Charlie Brown

FrankieGoesToHollywood's picture

Do you mind sharing a link on where the 3X comes from?  I am interested.  Its hard to get more efficient than diesel, but wouldnt mind reading a good technical article.

GMadScientist's picture

As someone contemplating a purchase and deciding between a TDi and hybrid, I can assure you there's zero difference on the highway (48mpg either way).

Mild advantage in 'city driving', but anyone doing much of that in a car should be clubbed like a baby seal anyway.

 

FrankieGoesToHollywood's picture

Agree on the milage.  But the reliability of a TDI (diesel) is hard to ignore.  I havent kept up, but years ago I saw a well-to-wheels analysis and Diesel is so far ahead of gas due to engine efficiency and reduced refining requirements.  I think batteries (of a hybrid) and refining of gasoline tip the balance to diesel.

GMadScientist's picture

I'm certainly not going to pay a premium (pun intended) to get a (heavy, sluggish) hybrid full of batteries.

And I can always see how well a TDi withstands used cooking oil if things get really desperate. ;)

General Decline's picture

Was in the UK last year and drove a diesel hybrid BMW. Have no idea what the fuel econmy was and didn't care. I was rolling on expenses however I did wonder when we might see these in the US.

walktheline's picture

My Hyundai I 30 Blue Drive 1.6 diesel does 54mpg - and thats what my engine management system tells me - not the manufacturers figures. That same figure holds when I'm cruising at 80-85. BTW there are even better performing cars of similar engine size now out there in the European/UK market and the engine technology developments will continue to up these figures, regardless of the oil price.

General Decline's picture

Can you get your hands on off road fuel? However, I would never advocate running that in your car cause that's illegal and shit.

winchester's picture
winchester (not verified) General Decline Jan 19, 2015 6:29 PM

that's not for nothing if car makers aim for 1 liter per 100km....

GMadScientist's picture

Sure, because everyone has an extra $6-$8k laying around for a car purchase that will save them less (not more) in this context.

Your theory made more sense when states were offering tax breaks for hybrids and electrics. They aren't now.

Stop being a dufus already.

Consuelo's picture

When outfitted with the 7.3 Powerstroke (Navistar) diesel at the time, those baby's could do 20+ mpg. on the open road, even as big as they were.

Oldballplayer's picture

I was going to say something snarky. And then I saw MDB was back.

Where have you been lately?

The Joker's picture

 We've made so much progress in the fight against climate change over the last 10 years....

That explains why it keeps getting colder every year!  You and your ilk can stop with the green technologies now.  It worked.  You won the battle!  Run along and pass the word on to your friends. 

Please.  I'd like it to warm back up again. 

 

PS Let me know when we've reached the perfect temperature.

noben's picture
noben (not verified) The Joker Jan 19, 2015 12:03 PM

Getting colder?
What parallel world do you live in?

Last year was the warmest on earth in recorded history. 7 of the 10 hottest years were recorded in the last 10 years.

These climate deniers remind me of the Round Earth Deniers of the Middle Ages. It turns out that whenever there is a great paradigm shift, a certain percentage of people simply will not accept that shift -- no matter how compelling the evidence or arguments.

Overflow-admin's picture

NOT getting colder?
Just checking satellite data. 1998 was the warmest on record, 2010 the second, and surface stations are still more and more of a joke* (HADCRUT, GISTEMP)
http://www.woodfortrees.org/plot/hadcrut4gl/from:1900/mean:12/plot/giste...
* You know, all these met stations built close to concrete-gate and met stations built just over air-conditioner heat sinks-gate and Climate-gate1.0, 1.1, 1.5 and 2.0?

The shit that comes out the met office about climate warming, it's not rainbows!

Do you like it, your global warming? Let's check some facts
So Hot I'm gonna barbecue tomorrow on the North Pole! http://earth.nullschool.net/#2015/01/19/2100Z/wind/surface/level/overlay...
Maybe a little cold still? Try the Great Lakes! http://www.glerl.noaa.gov/data/ice/imgs/IceCoverAvg1973_2013.jpg
Ever tried to predict the OLR with your climatology? http://www.bom.gov.au/climate/mjo/graphics/region.ts.dateline.gif
Man > Earth > Sun or Sun > Earth > Man? See the big thing in the center and the little one bottom left http://www.helioviewer.org/
So ok that Sun wins the game, but wait aren't there gazillions of stars around? Meh! http://electric-cosmos.org/

Or, do you prefer to have a serious discussion about subjects that are a little more closer to us like
WARS
GREED
ALL THE CHEMICAL POLLUTION AROUND
THE WORLDS RICHEST 80 SQUIDS

So, in conclusion, train your brain, or terminate it.

Sudden Debt's picture

We've made so much progress in the fight against climate change over the last 10 years...

like what? Ever increasing environnement taxes?

constantly higher electricity bills?

The Amazon forest is gone and the dodo went extinct... Woman's breasts all have gotten bigger due to pollution... 


 

Martian Moon's picture

Dude, you must give me a link to your last claim

And please attach a list of the most polluted cities in America

Kidding

It's true, estrogen mimicking endocrine disruptors are everywhere

It isn't just your imagination that Millenials are the wimpiest generation of men ever

Or that HS aged girls are really really, did I mention really, not the way you remember them

Mayer Amschel Rothschild's picture

Carbon credit monopoly burdening mankind sounded pretty swell.  No?

orez65's picture

"Green technologies" don't do sh.t about transportation.

You can't pump sunshine or wind into a gas tank. Ethanol produces more CO2 than gasoline.

Green technologies, basically, produce unreliable electricity.

Educate yourself, read "Terrestrial Energy" by William Tucker and "The Wind Farm Scam" by John Etherington.

Mayer Amschel Rothschild's picture

Monoploies/cartels don't take to competition or obsolescence very well.  Oil was never going anywhere...alternate fuel sources were a useful dissipation of focus and energy of the uninitiated goy masses though, wasn't it?

RaceToTheBottom's picture

Yep 25 is the lower limit.  Any lower and the Middle East countries will have to cut back on terrorism....

smukster's picture
smukster (not verified) RaceToTheBottom Jan 19, 2015 9:21 AM

Is it? Somehow I doubt there's enough producers who can afford that over any prolonged period. And that's even without contango.

I'm not betting on any of this, but I do think we're near the bottom.

FrankieGoesToHollywood's picture

COT data indicates speculators are net long. -> more room to fall when they finally give up.

Mr T's picture

Yo Frankie, about that fed paying interest how do they do that and pay the treasury over 90 billion record amount?

thanks

Greenskeeper_Carl's picture

I spent a year staring at that oil terminal years ago, and khwar al Amaya oil terminal about 5 miles north of it, KAOT it was called, and was still covered in bullet holes. Putting your ass on the line to make sure the oil flows, not the best way to spend a year of your life. There are plenty of ships there protecting the flow, I assure you.