Iraq, Brazil cuts may yield price spike

NEW YORK, July 1, 2015 – Large-scale downward revisions to oil production announced by Brazil and Iraq this week could lead to a spike in commodity prices within years, analysts say.

Brazil’s Petrobras said on Monday that it had reduced its 2020 global production goal from 5.3 million to 3.7 million barrels of oil per day (bopd).

And while Iraqi output rose to record levels of 3.69 million bopd in June, the government has been revising agreements with oil companies based on “more realistic” production targets. On Tuesday, the head of Iraq’s State Oil Marketing Organisation said 2020 targets had been reduced from 8.4 million-9 million bopd to 5.5 million-6 million bopd.

Between them, the two countries were slated to add more than 2 million bopd to the global supply by 2020, and up to 2.5 million bopd by 2025.

Oil prices have vacillated in recent weeks on developments such as booming global output, Iran’s planned supply injection and Greece’s EU bailout negotiations and default.

But analysts see a positive trend as likely emerging from the news from heavyweights Iraq and Brazil.

“All these project cancellations and deferral and cutbacks are setting the world up for tighter oil markets in the medium term (2017-19) unless the record Middle East oil rig count successfully translates into significantly higher production,” Seth Kleinman from financial services group Citi told Reuters.

Deutsche Bank responded to the revisions by saying, “Demand will have its say but from a supply perspective it is hard not to believe the seeds of the next price spike are being sown today.”

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