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. Last Updated: 07/27/2016

Iraq Chaos Staves Off OPEC Cuts

LONDON -- When OPEC oil ministers last met to review their production quotas for crude, some feared that exports from a resurgent Iraq would soon undermine the high prices they were then enjoying. One month later, as its ministers gather once again, the Organization of the Petroleum Exporting Countries can afford to relax.

Chronic looting and sabotage have hampered Iraq's efforts to ramp up oil exports and exploit its crude reserves, which rank second in size only to those of Saudi Arabia. The longer Iraq takes to restore its once-mighty oil industry, the longer its fellow cartel members can put off cutting their own output to make way for fresh Iraqi barrels.

Demand for oil remains strong, with the United States and other major importers running down their inventories and the peak summer driving season shifting into top gear. The price for OPEC's benchmark crude has been stuck at or near $28 per barrel -- the top end of the group's desired price range.

Given such conditions, OPEC representatives meeting Thursday in Vienna, Austria, will feel little need to tinker with output, oil analysts say.

"At these sort of numbers, they must be quietly rubbing their hands," said Rob Laughlin, managing director of London brokerage GNI Man Financial.

OPEC supplies about a third of the world's crude. The group agreed at its June meeting to leave its production ceiling unchanged at 25.4 million barrels per day.

"OPEC should retain the current production quota, because the current price is still quite good," said Indonesian Energy and Mineral Resources Minister Purnomo Yusgiantoro, in comments reported last week by Indonesia's national news agency, Antara.

Saudi Arabian Oil Minister Ali Naimi, seeking to reassure consumers, insisted that oil prices "are not high," in an interview Thursday with the London-based Arabic daily Al-Hayat.

"Even if we do not change the production ceiling, it is important to meet to review the market situation and developments and to hear the views of the 10 ministers regarding the developments in the markets," Naimi explained.

The United Arab Emirates' top oil minister, Obaid bin Saif al-Nasseri, said Sunday that there are no "convincing reasons" to change the current ceiling.

The big issue, as always, will be Iraq.

Although Iraq is a founding member of OPEC, it hasn't participated in OPEC's quota agreements since Saddam Hussein invaded Kuwait in 1990. Iraq's erratic exports under the UN oil-for-food program made it the cartel's biggest wild card. Iraq stopped pumping crude altogether during the U.S.-led invasion, and it only just started offering long-term supply contracts last week.

In anticipation of an early resumption of Iraqi exports, other OPEC members began this spring to rein in excess production and stick more closely to their agreed quotas. Led by Saudi Arabia, they trimmed their excess output by 1 million bpd in May and an additional 250,000 barrels in June, Laughlin said.

Some oil ministers suggested at OPEC's June meeting that it needed to go even further and lower its production ceiling to avert a price crash once Iraq began pumping again at its prewar level of 2.1 million bpd.

Few of them foresaw the problems and delays Iraq would face. Looters and, more recently, saboteurs have compounded the task for American and Iraqi oil men trying to repair facilities left in tatters after 12 years of UN sanctions and a lack of investment.

"It's still not looking like OPEC needs to get worried about a major return of Iraqi oil to the market," said John Waterlow of Wood Mackenzie Consultants in Edinburgh, Scotland.

OPEC ministers will likely show "a steady hand on the tiller" in Vienna and decide to do nothing, he said.

"There is absolutely no problem. There's no pressure on them. I don't expect any change at all at this meeting," said Paul Horsnell, head of energy research at J.P. Morgan in London.

The impact of such a non-decision would be minor for American motorists, who now pay an average of $1.55 per gallon for gasoline, according to the latest Lundberg Survey of 8,000 U.S. filling stations.

"It's not going back down to $1," Horsnell said of the price per gallon, "but it's not going to explode out to $2."