OPEC compliance seen growing as laggards Iraq and UAE pledge action

OPEC has so far surprised the market by showing record compliance with oil-output curbs and could do so further in coming months as the biggest laggards - the United Arab Emirates and Iraq - pledge to catch up quickly with their targets.

The Organization of the Petroleum Exporting Countries has pledged to curb its production by about 1.2 million barrels per day (bpd) from Jan. 1, the first cut in eight years, to boost prices and get rid of a supply glut.

Compliance with output restrictions has often been problematic in OPEC's history but this time the group has delivered reductions amounting to as much as 90 percent of the target in the first month alone.

That prompted the International Energy Agency (IEA) to call it one of the deepest cuts on record.

Iraq and the UAE have delivered smaller portions of their pledged reductions, based on their own figures and OPEC production estimates by government agencies, consultants and industry media.

Still, officials and industry sources say the UAE will try to move closer to its OPEC target in coming months, improving average compliance during the six-month duration of the supply cut rather than focusing on month-by-month performance.

"The UAE is fully committed to the OPEC cuts and is undertaking the necessary measures that will ensure it is fully compliant over the six-month period with the OPEC agreement," the UAE's OPEC governor, Ahmed Al Kaabi, told Reuters in a statement.

The UAE, among the core Gulf OPEC group that traditionally shows high compliance with output agreements, has focused on expanding its production capacity in the last few years, rather than on limiting output.

It doubled the capacity of its Ruwais refinery last year to more than 800,000 barrels per day to feed rising domestic demand.

Oilfield maintenance could also help to push compliance higher. Abu Dhabi National Oil Co has work planned at fields producing Murban and Das light crude in March and May, people familiar with the matter said.

OPEC's average compliance is put by the IEA at a record 90 percent in January, and based on a Reuters average of production surveys it stands at 88 percent.

Top exporter Saudi Arabia cut production by even more than called for in the OPEC deal, helping to push compliance higher, according to its own figures and those of independent analysts.

IRAQ 'RESPECTS' OPEC COMMITMENT

The UAE and Iraq's own figures suggest they have further to go than other big OPEC producers to reach targeted output.

According to data the countries reported to OPEC, while both cut production substantially in January, they did so from higher levels than the supply baselines used in the agreement, meaning that technically they are not complying at all.

Iraq had initially been reluctant to limit supply. In negotiations last year on the supply cut, Iraq argued that it should be exempt due to a need for cash to fight Islamic State militants.

Baghdad also pushed to be allowed to cut production from a higher level than estimated by the secondary sources OPEC uses to monitor its output. Eventually, to get a deal, it accepted a cut from a lower baseline.

Iraq's OPEC peers are privately urging Baghdad to make further reductions, sources say, and there are indications compliance may at least not worsen. Partial export figures for February suggest no increase in shipments, and March allocations were reduced sharply.

"Iraq's allocations in March are low due to OPEC cuts, mainly," a source familiar with the matter said. "Iraq respects its commitment."

The table below is based on OPEC production in January as estimated by OPEC secondary sources, OPEC members themselves, news agencies Reuters and Bloomberg and bank Goldman Sachs.

OPEC's six secondary sources are oil-pricing agencies Platts and Argus, ‎the IEA, the U.S. Energy Information Administration, consultancy Cambridge Energy Research Associates and industry newsletter Petroleum Intelligence Weekly.

OPEC UAE Iraq

compliance compliance compliance

high low high low high low

94 82 100 negative 62 negative

Source: Reuters

Oil prices under pressure as Iraq resists joining output cut

Oil prices came under pressure on Monday as Iraq said it wanted to be exempt from an OPEC deal to cut production, though losses were capped by Iran saying it would encourage other members to join an output freeze.

Brent crude futures LCOc1 were up 6 cents at $51.84 a barrel by 0413 EDT. U.S. West Texas Intermediate (WTI) crude CLc1 was down 5 cents at $50.80.

Iraqi oil minister Jabar Ali al-Luaibi said Baghdad wants to be exempt from any production cut the Organization of the Petroleum Exporting Countries is aiming to achieve.

Falah al-Amiri, head of Iraq state oil marketer SOMO, added that Iraq's market share had been compromised by the wars it has fought since the 1980s.

"We should be producing 9 million (barrels per day) if it wasn't for the wars," he said.

OPEC announced plans last month to reduce its output to between 32.5 million barrels per day (bpd) and 33 million bpd, from September's 33.39 million bpd. The group will iron out the details of how it will hit the target at its next meeting in Vienna on Nov. 30.

"A decision to cut to 33 million bpd should keep the crude price basis Brent in the $50-$60 band, not least because it shows that Saudi policy has changed, that OPEC is serious and can rise above political disagreements," David Hufton, of consultancy PVM, said in a note.

Iraq said it could raise output slightly this month from September's 4.774 million bpd.

Comments from Iran's deputy oil minister Amir Hossein Zamaninia, however, helped to push prices higher earlier in the session. He said Tehran would encourage other OPEC members to join an output freeze, adding that $55-$60 a barrel is a fair price to bring stability to the market.

Also pressuring the market was last week U.S. oil rig count, up by 11 for its first double-digit increase since August.

"We should see rig counts continue to increase in the wake of the recent price rally," Morgan Stanley said.

Analysts said that oil markets, which have been dogged by two years of oversupply, might be rebalancing in terms of production and consumption.

"The market moved into a small deficit in Q3, will remain so in Q4 and then the deficit will expand significantly in 2017," Barclays bank said in a note to clients on Sunday.

Source: Reuters

Iraq army begins offensive to retake northern city of Mosul

Iraqi army troops, with the help of allied forces, have launched a military offensive to oust the Islamic State group from the northern city of Mosul, the Iraqi prime minister said on Monday.

Haider al-Abadi, flanked by top military commanders, addressed the nation on Iraqi television to inform the country that he had ordered the start of the offensive.

"We started fighting IS in the outskirts of Baghdad, and thank God we are now fighting them in the outskirts of Mosul, and God willing the decisive battle will be soon," al-Abadi said.

The military operation to retake Mosul in the northern Niniveh province, which has been under IS control since June 2014, had been planned for months.

The governor of Niniveh province Nofal Hammadi said that the Mosul offensive would be a fatal blow to the IS.

In a televised speech he called upon al-Abadi to protect the civilians of Mosul during the long-awaited military operation and asked the inhabitants of Niniveh to cooperate fully with troops advancing through the outlaying towns and villages.

Addressing his international support, he asked the United States-led military coalition to ensure precision when conducting airstrikes against the IS in the city to avoid civilian casualties.

The US, which has been providing aerial support to various local fighting factions in both Iraq and Syria since 2014, welcomed the onset of the Mosul offensive.

In a statement issued shortly after al-Abadi's official announcement, Defense Secretary Ashton Carter said the US and the rest of the international coalition stood ready to support the Iraqi Security Forces, Peshmerga fighters and the people of Iraq.

Thousands of soldiers representing different religious and ethnic communities across Iraq were reported to be gathering in tactical towns and cities on the periphery of Mosul.

Providing support to the central Iraqi Army offensive are the Shiite-led Popular Mobilization Forces, Kurdish Peshmerga, Sunni-majority Arab tribal coalitions and the international air support coalition, among others.

Tens of thousands of leaflets were dropped over the city before the operation to warn citizens that the start of the armed offensive was imminent.

The number of people who remain in Mosul, the second largest city in the country, is unknown, but there were two million citizens living there when the IS took control.

It was in this city that IS chief Abu Bakr al-Baghdadi declared a "caliphate" of the territory controlled by this group in Iraq and Syria.

In recent months the IS have lost swathes of land in Iraq and Syria, with various international and internationally-backed military groups pushing against their territory on all fronts.

On Sunday, Turkish-backed rebels in Syria regained control of the symbolically important town of Dabiq from the IS, less than 24 hours after launching an offensive.

Source: EFE

French warplanes join attack against IS in Iraq's Mosul

French fighter jets took off from an aircraft carrier in the eastern Mediterranean on Friday to engage in aerial attacks against the Islamic State in the Iraqi city of Mosul, according to French media sources.

At around 04:00 am GMT, eight Aéronavale Rafale-M fighters took off from the French "Charles de Gualle" aircraft carrier, which was navigating close to Cyprus as part of France's Operation Chammal in the region, according to French BFM-TV.

The fighters' mission is to assist Iraqi government troops in their bid to expel IS members from Mosul, a current stronghold for the terrorist group.

The "Charles de Gaulle" had just arrived to the area for its third combat tour along with the international coalition led by the United States against IS in Syria and Iraq

The French minister of Defence, Jean-Yves Le Drian, announced that the aircraft carrier's deployment will take place from the end of Sept. to the end of Oct. when the ship is due for a major 18 month maintenance overhaul.

Source: EFE

US quizzes 'Islamic State chemical arms expert' in Iraq

The man was once a specialist in chemical and biological weapons for Saddam Hussein, the Iraqi leader overthrown by the US invasion in 2003, Iraqi and US sources told US media.

Named as Sleiman Daoud al-Afari, he was seized by US special forces last month.

The US special forces are part of a more aggressive strategy against IS.

The man has already told interrogators how IS loaded mustard gas into shells, US sources told the New York Times.

Last month, sources at the global chemical watchdog, the Organisation for the Prohibition of Chemical Weapons (OPCW), announced that sulphur mustard had been used last year in an attack on Kurdish forces in Iraq blamed on IS.

If confirmed, it would be the first known use of chemical weapons in Iraq since the fall of Saddam.
'Red Cross visit'

Mr Afari was identified as a former employee of the Military Industrialisation Authority, which functioned under Saddam, who used poison gas against Iraq's Kurdish community in the 1980s.

Unnamed US defence sources told the New York Times Mr Afari was being held in Irbil, a Kurdish stronghold in northern Iraq.

He is being questioned about IS plans to use mustard gas, which is banned under international law, in Iraq and Syria, the paper says.

The alleged IS weapons expert reportedly gave his captors details of how the group had weaponised mustard gas into powdered form and loaded it into artillery shells.

One defence official quoted by the paper said the gas was not concentrated enough to kill anyone but that it could maim people.

Mustard gas, which is liquid at ambient temperature, is a powerful irritant and blistering agent which causes severe damage to the skin, eyes and respiratory system and internal organs.

The International Committee of the Red Cross (ICRC) visited the prisoner after it was notified of his capture by US officials, the paper adds. No details were given.

Two unnamed Iraqi intelligence sources quoted by the Associated Press news agency described Mr Afari as the head of the IS unit trying to develop chemical weapons.

US officials announced last week that a US commando force recently deployed in Iraq had captured an IS leader without giving his name.

IS, a fundamentalist Sunni Muslim group also known as Daesh, is notorious for its brutal methods in gaining territory in Iraq and Syria.

It claimed a number of devastating gun and bomb attacks outside the region in 2015, notably the attacks on Paris and downing of a Russian airliner over Egypt.

Last week, the UK's national head of counter-terrorism policing, Assistant Commissioner Mark Rowley, warned that IS might be planning a "spectacular" attack in the UK.

Source: BBC