Updated Sept. 29, 2016 4:07 p.m. ET
Shortly after OPEC reached a tentative deal Wednesday to cut production, a big challenge to finalizing the plan became evident. Iraq, a country that was hesitant to curb its output, said it doesn’t trust the oil-production numbers OPEC typically relies on.
The deal that members of the Organization of the Petroleum Exporting Countries hammered out over six hours in an Algiers conference center boosted oil markets but provided only broad-brush strokes for a production cut. It says OPEC will limit output to between 32.5 million barrels a day and 33 million barrels a day, down from 33.2 million barrels a day in August.
The plan doesn’t say how much each individual country will have to cut. And it won’t be completed until November, giving plenty of time for it to falter.
In recent months, resurgent Iranian and Libyan output seemed likely to be OPEC’s biggest challenge in reaching a deal. But it was Iraq that almost blocked the agreement Wednesday by objecting to the oil-production data OPEC generally uses to determine how much each country can produce, say people familiar with the matter. Iraq says the information, which is compiled by independent analysts, under reports Iraq’s actual output. Relying on that data, Iraqi oil minister Jabbar al-Luaibi argued, could lead to Iraq getting a smaller share of the group’s production.
OPEC and the Oil Market
Mr. Luaibi only got on board when OPEC’s secretary general offered to set up a committee to assess each members’ production, but he still threatened to walk out of the group’s next meeting in November if the output numbers aren’t to his liking, the people said.
“I had to look after the interests of my country,” Mr. Luaibi said in an interview Thursday, noting that the difference in production figures “is wide.”
Such sticking points have undone previous attempts to reach production cuts. The latest deal was only possible after longstanding rivals Saudi Arabia and Iran reached an understanding that Iran, which is emerging from years of sanctions that hurt its production, would be exempt from any cuts.
Libya and Nigeria—both struggling to recover from significant disruptions to their output—are also likely to be treated differently, OPEC officials said Wednesday, without specifying exactly what they might mean.
Between them, Iran, Libya and Nigeria are trying to raise their output by as much as 1.5 million barrels a day, adding to the burden on other OPEC producers to cut output.
Iraq is also trying to emerge from decades of depressed production. For years it was a quiet member of OPEC, exempt from production cuts because of the damage decades of sanctions, neglect and war wrought on its oil industry. But new investments have boosted its output over the last few years, adding to the global oil glut created by rising shale production in the U.S.
OPEC members will no longer let Iraq claim an exemption from cuts. Now, Iraq is pushing OPEC to use its own production figures as the basis for any cut. Over the course of 2016 the country has consistently reported that its output is more than the numbers provided by secondary sources, including several media outlets. The discrepancies have ranged from 179,000 barrels a day to nearly 400,000 barrels a day in January, according to OPEC data.
If that happens, other members will likely challenge their output figures, threatening OPEC’s ability to enact the cuts its promised, said Oliver Jakob managing director of Switzerland-based consultancy Petromatrix.
For OPEC’s members the stakes are high. Most get the bulk of their revenue from oil sales. Low prices are painful, but pumping less also limits income.
Iraqi officials appeared irate after the meeting ended, hustling reporters to a late-night briefing where the oil minister forcefully claimed that the oil production figures reported by various government agencies, analysts and media are inaccurate.
He said these so called “secondary sources” had posed problems for Iraq in the meeting, lambasting a reporter from price reporting agency Argus Media who was present.
“You won’t work in Iraq if you continue this way,” he told the reporter. Argus declined to comment.
—Georgi Kantchev and Sarah Kent contributed to this article.
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Tags: Algiers, Basra, Iran, Iraq, Iraqi Oil Minister Jabbar al-Luaibi, Libya, Nigeria, oil prices, OPEC, Organization of the Petroleum Exporting Countries, production cuts, production output, Saudi Arabia, shale production in the U.S.