In Davos an Iraqi official said that last year’s 400,000 barrel/day crude production increase will be followed by a similar increase in 2008.   (The arithmetic in the article that follows is not correct.)

It behooves oil investors to pay attention to Iraqi developments.  I have said that “peak oil” has not yet arrived.  The reason in large part is because both Iraq and Nigeria are capable of huge production increases if above-ground facts would permit it.  We are seeing this happen in Iraq, which is one reason that oil prices have reached a plateau in recent months. 

The key to Iraqi oil production lies in Kurdish politics and particularly in how matters in Kirkuk become resolved - if they ever are resolved.  Kirkuk was once a Kurdish city that Saddam Hussein brutally converted to Sunni domination.  Now the Kurds are turning the tables but the powers that be in Baghdad are not comfortable with Kurdish domination of this oil-rich area.  Elections have been scheduled and consistently postponed.  Violence is possible.  

If the Kurds, Sunnis, and Shia reach an amicable agreement on Kirkuk there is indeed a potential for substantial growth in Iraqi crude exports.  There is no way to predict the outcome.  If war ensues, it will be very bullish for the price of oil.   If a peaceful resolution occurs, it will be bearish for the oil price.   Here is the math-challenged report:

Iraq expects to raise oil production

By EDITH M. LEDERER, DAVOS, Switzerland,

Iraq expects to increase oil production this year to 3.7 million barrels a day and hopes to sign contracts to boost the output from oil fields that aren’t producing to capacity, Iraq’s oil minister said.

Iraq’s oil production is at its highest since before Saddam Hussein fell in 2003, Hussein al-Shahristani said in an interview Thursday night on the sidelines of the World Economic Forum’s annual meeting.

“We have increased our production by 400,000 barrels a day over the last three months,” he said. “This has been a very big increase … from 1.9 million barrels a day to 3.3 million. The 400,000 barrel increase has all gone to exports.”

“In 2008, we expect another increase of similar size,” al-Shahristani said.

The Iraqi minister said the recent rise in oil prices was not a result of a shortage of crude oil.

“On the contrary, there is as much crude oil on the market as people want,” he said. “It has been gambling by speculators, just betting on the prices really, disregarding the fundamentals of the oil markets.”

Oil prices have now retreated from record levels around $100 a barrel late last year on worries a flagging U.S. economy would dampen fuel demand. On Friday, light, sweet crude for March delivery rose $1.82 to $91.23 on the New York Mercantile Exchange on the oil market’s view that worries about a U.S. recession may be overblown.

Al-Shahristani will be participating in an “exceptional meeting” of the Organization of Petroleum Exporting Countries next month in Vienna to discuss the current oil market situation.

“The recent rise in price, although you have noticed there’s been a decline, was not really because of shortage of supply of crude oil in the market,” he said.

“Therefore, there was no action that OPEC or any other producers could take really to balance the situation — just put in the market as much oil as the buyers need, and OPEC has done this,” he said.

“If we ever find that the markets need more oil, OPEC is always ready to increase production,” al-Shahristani said. “You shouldn’t forget that practically all OPEC countries are producing to their capacity.”

Al-Shahristani said Iraq is “in serious discussion with all major companies to sign contracts in the first quarter” for technical support to help boost production in “brown fields that are producing but not to optimum.”

“We are going to develop these brown fields to get the full use of their potential,” he said.

Tags: energy investments

This entry was posted on Sunday, January 27th, 2008 at 12:36 pm and is filed under Iraq, Peak Oil, oil supply. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.