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Iraq, Saudi on OPEC Collision Course over Next Oil Curb

Source: Reuters 12/12/2012, Location: Middle East

A new rivalry at the top of OPEC has emerged, pitting up-and-coming Iraq against undisputed oil cartel heavyweight Saudi Arabia. Having overtaken Iran as OPEC's second biggest producer, a rejuvenated Iraq is beginning to worry Riyadh.

At Wednesday's meeting of the Organization of the Petroleum Exporting Countries the opening salvos were fired in the struggle over who takes responsibility for cutting output if oil prices, comfortable for now at $109 a barrel, start falling.

OPEC agreed to retain its 30-million barrel-a-day output target and meet next on May 31, but many market observers think supply restrictions will be needed sooner rather than later if producers want to prevent slow global growth and fast-growing inventories sending prices tumbling.

After 20 years of war, sanctions and civil strife that left its oil industry in disarray, Iraq is no mood to consider curtailing output just as it starts to take off.

"Iraq will never cut production," said Iraq's OPEC Governor Falah Alamri. "Some countries that have increased their production in the last two years - they should do so. This is a sovereign issue, not an OPEC issue."

That was a clear reference to Saudi Arabia, which this summer lifted output to a 30-year high above 10 million barrels a day to prevent oil prices ballooning after Western sanctions on Iran halved its production.

The view from Riyadh, said delegates at the meeting is that Iraq should contribute to the next round of OPEC supply curbs.

A senior Iraqi official warned that if Saudi pushed that line there would be "dark days ahead" for OPEC, saying Baghdad would not even consider output restraints until 2014.

"Every additional barrel that Iraq produces reinforces its confidence and its expectations that higher production is achievable - and it will negotiate on that basis," said Iraqi expert Raad Alkadiri of Washington consultancy PFC Energy.

"Now OPEC is dealing with a much more confidant Iraq and Baghdad is looking at regional politics and is less willing to compromise."

"Iraq is impervious to arguments. It says that it was subject to sanctions for so long that it has a free pass to rebuild its economy," said Neil Atkinson, director of energy research at Datamonitor.

Output from OPEC is already down sharply from the highs of the summer when the Saudi surge took the 12-member group to nearly 32 million bpd. Production in November was down to 30.8 million with Saudi easing to 9.5 million.

But OPEC may need to ease further to balance the market in the first half of next year when, demand depressed by a stagnant economy, its own forecasts indicate the requirement for OPEC crude will come in at only 29.25 million bpd.

"We're concerned by the drop in demand and the high level of stocks," said Algerian Energy Minister Youcef Yousfi.

"There is rising oil from places like the United States and Iraqi output is rising quite sharply. There's a risk that we see a sharp drop in price next year," said Atkinson.

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