Prices and regulations seem to change almost daily in the oil industry. As oil producers try to rein in uncontrolled oil costs by trimming production, Iraq, one of the largest producing countries in the world, is openly resisting the agreement, which could lead to further turmoil among oil producers.
In September, members of OPEC (Organization of the Petroleum Exporting Countries) gathered in Algeria and tentatively agreed to a deal that would curb oil production. In recent years, global oil prices have dropped while production has increased; prices have been cut nearly in half since 2014, despite a swell of oil production. The belief is that by limiting production for the first time in eight years, countries can better balance the supply and demand and bring oil prices back up to an acceptable level, thus helping the global economy. OPEC’s current output is a record 33.6 million barrels per day; the proposed deal will cut production to 32.5-33.0 million barrels per day.
The deal will be finalized and approved by OPEC’s 14 member countries at a general meeting in November and is expected to run for six months initially and then be reviewed. At that meeting, each OPEC member will also receive a personalized quota of how much oil they can produce. Aside from the member countries, other nations and oil production companies are also expected to participate in the production cuts.
“We are confident that the other non-OPEC producers will join this (agreement) because it is in the benefit of all producers … and also consumers,” said OPEC Secretary General Mohammed Barkindo.
It didn’t take long after the deal was initially agreed upon for controversy to arise. Iraq, the second largest producer in OPEC, is questioning the organization’s methods for estimating each country’s oil production and even started to produce more oil than before, openly defying the agreement.
OPEC currently uses two methods in its calculations of a member country’s future oil production: numbers submitted by the country itself and estimates from secondary sources. The outside numbers are typically lower than what a country self-reports, but those are generally the numbers that are used as the true output. OPEC countries are notorious for cheating about their oil production numbers, which is why the organization also gets outside estimates. The difference in Iraq’s August 2016 estimates, for example, was substantial, with a difference of 284,000 barrels per day for a total of nearly .3 million barrels for the month.
“These figures (secondary sources) do not represent our actual production,” said Iraqi Oil Minister Jabar Ali al-Luaibi. He has urged oil and gas producers in Iraq to continue to increase their output through 2016 and into 2017, as was originally planned.