OPEC Compliance Marred by Iraq, UAE

OPEC has delivered record-high adherence to its oil output-cutting pact so far in 2017, but with laggards Iraq and the UAE yet to show how they can meet their prescribed targets, sources say a refocusing on exports may be the key to further progress.

The two major producers have shown relatively low compliance with the agreement based on figures from secondary sources—government agencies, consultants and industry media—that OPEC uses to monitor its output, Reuters reported.

Both countries stress their commitment to the deal, aimed at draining global oil inventories and lifting crude prices out of a three-year slump. But they complain that the secondary sources' assessment of their production before the pact took effect in January was too low.

As a result, in their opinion, the two countries have the unpalatable task of making an even bigger cut to comply fully.

"Iraq has high conformity, but secondary sources' figures are still our problem," said an industry source familiar with Iraqi thinking.

The UAE's Ministry of Energy said in a statement: "The UAE is committed to cut its oil production by 139,000 barrels of oil per day and we have and will continue to meet this commitment."

Iraq did not comment officially for this story. UAE Energy Minister Suhail bin Mohammed al-Mazroui told Reuters in April the country was complying 100% with its own figures. Iraqi Oil Minister Jabar al-Luaibi has said the country is adhering fully.

In addition to the countries' issues with their OPEC targets, rising domestic needs and international commitments are obstacles. Iraq was initially against cutting production since it needed cash to fight the self-styled Islamic State terrorist group. Both countries have been expanding output capacity in recent years.

The Organization of Petroleum Exporting Countries, Russia and other producers pledged last year to cut production by about 1.8 million barrels per day from Jan. 1 for six months. The pact was prolonged until March 2018 and might be extended further.

Officials from a joint OPEC and non-OPEC technical committee will meet in Abu Dhabi, UAE, on Aug. 7-8 to discuss ways of boosting compliance with their supply reduction agreement.

"There was a call for a meeting, as there is a need to align all countries to achieve 100% compliance," a source close to OPEC said.

The UAE is showing lower compliance than others in the core Persian Gulf OPEC group, because it is using its own, higher output level as a reference point for its supply cut, rather than the supply baseline used in the agreement.

Like Iraq, the UAE's own figures suggest it has further to go than other big OPEC producers to comply fully. In May, the UAE said it pumped 2.981 million bpd, above its target of 2.874 million bpd under the OPEC pact, while secondary sources estimated its output at 2.899 million bpd.