Iraq, Iran drive Opec rise

Opec output rose to a four-year high in April after Opec and non-Opec producers failed to agree to a production freeze in Doha, Qatar.

Increased Iranian and Iraqi output boosted production to 32.6mn b/d, the highest for the current 13 Opec members since April 2012 (see table). The rise was only partly offset by production falls in Kuwait, Nigeria and Venezuela.

Iranian crude output rose to 3.4mn b/d in April, its highest since February 2012, four months before EU and US sanctions came into effect. Production will soon hit 3.8mn b/d, state-owned NIOC managing director Rokneddin Javadi says. His comments raise the possibility that Tehran will be in a position to attend Opec's 2 June meeting in Vienna prepared to discuss freezing output. It declined to do this in April when a number of Opec and non-Opec oil producing countries met in Doha to discuss a freeze, and the talks collapsed.

Iran has consistently said it will discuss the initiative only after it has regained its pre-sanctions output of 4mn b/d. "If [market] shares are respected and a consensus is reached between Opec members, Iran can also consider the issue, or negotiate over it after reaching its targeted output capacity," Javadi says. But he cautioned that "when other states are not committed to their shares, it is not possible to be hopeful of consensus among countries".

Iranian willingness to agree to the initiative would enable Saudi Arabia to adopt a similar position. Saudi Arabia unexpectedly tore up the draft agreement in Doha in April, saying it would freeze its output only if Iran agreed to do the same. If the two countries' conditions for freezing production are met, the proposal could be resurrected when Opec ministers meet in Vienna.

Doha showed that major participants in the oil market are more awake to the difficulties faced by some producers, Javadi says. "As such, one can hope that the upcoming Opec meeting will be a better meeting."

Uncertainty has grown over the direction of Saudi oil policy since the country's deputy crown prince Mohammad bin Salman reset the country's position at Doha. But Saudi Arabia has shown no indication that it will raise production towards its 12.5mn b/d capacity to try to contest Tehran's ability to regain market share. Saudi Aramco is cutting May exports to some Asia-Pacific term customers owing to field maintenance. And Aramco raised most of its June official formula prices for its European and Asia-Pacific customers, which could dampen demand for its crude.

A rise in oil prices to above $40/bl since the output freeze plan was mooted in February, together with a growing consensus that supply and demand will rebalance in the second half of this year, could scupper any moves towards reaching any kind of agreement. Russian oil minister Alexander Novak moved towards this position after the Doha failure, saying market rebalancing may make moves to freeze output irrelevant by June.

Iraq's production rose to a new high of 4.3mn b/d in April thanks to record exports from its southern terminals of 3.36mn b/d. The increase came despite the fact that Baghdad exported no oil through the northern pipeline to the Turkish port of Ceyhan, as all crude delivered through the pipeline is being sold on behalf of the semi-autonomous Kurdistan Regional Government (KRG).

Nigerian production remained under pressure because of the shutdown of the 250,000 b/d Forcados stream. A three-day strike by oil workers in Kuwait pushed down output. Venezuelan production fell by 70,000 b/d as daily rolling blackouts in some parts of the country hampered upgrading operations. An initial rise in Libyan output was later offset by storage issues at the Marsa el-Hariga terminal.