Iraqi oil could dampen crude prices
Jan 29, 2010
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Don't count on oil prices climbing steadily over the next few years, says a note from RBS. They could well decline from current levels of just over $73 a barrel, with the revival of Iraqi oil production pushing them down for "much of the decade".
Iraq has just agreed contracts with oil firms with output commitments that could almost quintuple the national production capacity to 11.75 million barrels per day (mbpd) by 2017.
That's close to Saudi Arabia's estimated capacity of 12mbpd over the next few years.
It would be enough to meet 88% of the growth in global demand over the next eight years as a whole. Iraqi production capacity would begin to jump in 2013 and in the three subsequent years would easily outstrip global demand growth.
Infrastructure and security problems, along with the reimposition of an Opec quota on Iraq, are obstacles to the expected output increase. But the companies helping Iraq develop the oil are experts who would suffer financially if they failed to meet contractually defined output levels.
This all "points to a considerable upward force on output capacity". And the Iraqi government doesn't expect an Opec output quota to be reimposed for six or seven years. Even if there is one, the Iraq-induced rise in Opec's spare capacity alone would dampen oil prices. RBS reckons Brent crude could drift down to $64 by 2013 and hit $50 three years later.
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