A Note on Global Oil Prices and Exports from Iraq *. By Dr. Falah Alamri **

Ladies and Gentleman,

I would like first to thank the organizers of this conference for giving me the opportunity to speak in such an important gathering.

I will focus in my brief speech mainly on two points. First, factors behind the declining and volatility of oil prices, and second, the potential increase of Iraqi crude oil export.

Generally speaking, crude oil prices are flexible and responsive to economical, geopolitical, technological and regulatory changes. The elasticity of these prices that have been seen in the oil markets was mainly the outcome of the interaction between market fundamentals on one side and the performance of the financial derivatives on the other, however, these two factors either work in tandem to each other or they operate in an opposite ways.

The causes of oil price fluctuations that markets are witnessing today can be explained by looking briefly at the 2008 and 2014 oil prices behavior. The financial crisis in 2008 was sparked by the collapse of the property sector in the US that then led to shortages of financial assets in the portfolio of oil consumers to make prompt payment for oil purchases. Of course, the bankruptcy of some major banks was behind the lack of cash. This crisis caused a sharp decline in oil prices and hence lower revenues for the producing countries which most of them are highly dependent on oil revenues and therefore affecting their budgetary balancing.

Prices were recovered later on due to contingency measures taken by governments who started injecting money into their economies for the sake of backing the banking sector and the related sectors including the oil industry. The provision of cash has helped stimulating demand for oil, and hence increased prices. Therefore, the period of 2008-2009 can be termed as “Demand Shock“.

While the reasons behind price fall seen since late 2014, the oil supply glut has constituted the main cause, as there is, according to the data published by several prominent institutions, more than 2mb/d still flowing from the producing countries into the markets. This over supply, which started from the last quarter of 2014 onwards, has come about for several reasons. One of these reasons is the rise of shale oil production in the US to around 4mb/d, making the total oil production in the US above 9 mb/d, which means that each barrel of shale oil produced would replace the barrel imported by the US from other regions and so steadily reducing imports of crude oil.

Other reason is the continuation of OPEC and non-OPEC countries with their current rates of production in an effort to secure and expand their market shares, causing overhangs in the markets, as the world refining capacity cannot absorb this incremental supply of oil. The current situation of falling prices leads us to believe that the markets are operating under what is termed as “Supply Shock“.

Therefore, one can plainly see the contrast of the causes led to the falling of oil prices that the two periods have demonstrated as the first period is related to the weaker demand and the second period related to excessive supply.

To sum up my short and medium terms perspective of the market, it seems that prices will maintain its current trend between $50 to $70 per barrel for at least the next two years unless there is a drastic cuts in oil production particularly Shale Oil, or due to the sudden disruption in oil supply because of geopolitical events.

Ladies and gentlemen,

The second subject of my speech is related to the production and marketing of Iraqi oil by federal ministry of oil, through SOMO.

Following sharp fluctuations in oil production and exports in the past three decades, the new democratic Iraq has managed to put crude oil production on an ascending path since 2003 despite temporary setback. Ramping up production by itself does not effortlessly lead to higher export volumes, unless accompanied with diligent work on its infrastructure. Oil production has reached a record high at around 4 million barrels a day. The Federal Ministry of Oil through, Oil Marketing Company (SOMO), managed the export of more than 3 million barrels a day on average so far in 2015, reaching the highest ever volume of exports.

Despite of the difficulties that Iraq has been through it emerged stronger, moredeveloped, and even more determined to increase the country share of the oil market in order to fulfill the main task, which is to maximize Iraq’s oil revenues.

Therefore, key bottlenecks are being handled and all export facilities are going to improve and expand, which will makeIraq emerge as an important player on the scene of oil markets for decades to come.

A tremendous effort has been taken by SOMO management to employ, train and develop the staff to provide them with valuable experience and raise them to international standard. Information technology is also a corner stone in the modernization and re-engineering of SOMO, which is presently utilizing a number of cutting-edge information systemsrelated to the international oil markets.

When I look back to the achievements of SOMO management during the last years, it has nowadays the human quality and managerial capability to handle the marketing activities and importing oil products, and also marketing more than one grade of crude oil.

Exporting two different oil grades is the latest challenge and we are going to make it work. Infrastructure challenges were handled in coordination with the Ministry of Oil (MoO) and its related affiliates of oil companies. In addition to Basra light crude, MoO launched new grade for export called Basra heavy. In early June, shipments of the new heavy crude have already left our export terminals in the South in early June. The two grades will be more competitive in the international markets than was the case with the single grade of fluctuating quality. This step will participate in increasing of crudes export and open new horizon for further enhancement in the future and as production continue to grow.

Ladies and gentlemen,

We should mention here, that it is not only about pumping more oil to the international markets, but it is about how this source of wealth will be managed and what it could bring to Iraqi people. Therefore, we realize the importance of the civil society and non- governmental organizations and the essential role of the people’s participation in monitoring oil revenues. Thus, Iraq voluntarily joined the Extractive Industries Transparency Initiative and has become the largest oil producing country in the world that published all its revenues from exporting oil alongside with figures from oil companies which bought that oil. The whole process is being conducted by reputable auditing firms with guidance of the international secretariat of the EITI.

Finally, MoO business with IOCs is going smoothly and mutual understanding, in particular their oil production plans, payment of petroleum costs and, production fees.

Thank you for your attention

(*) Keynote Speech on the Iraq Petroleum Conference, London

(**)Director General of the Iraqi Oil Marketing Company, SOMO the Acting Director General of the Iraqi Oil Tankers Company (IOTC), since July 2009 and Iraq’s Governor for OPEC, holds a Ph.D. in Oil Law (Marine Insurance and Transporting of Oil Cargo), Collage of Law, Dundee University, Scotland, UK. Holds an M.Sc. in International Cargo Transportation Convention laws, Salford University- Manchester- UK and a B.Sc. in Economics- Collage of Administration and Economics- University of Basrah- Iraq. Published a number of papers on : Main Priorities to Economic Reform of the Iraqi Government, 2014, in 2006 – Basic Principles for Iraqi Petroleum Policy Program, in 2005 – Iraqi oil marine transporting is part of Iraqi petroleum policy. In 1999- Iraqi economic forum magazine-London- The effects of drying the Iraqi marshes on the environment in Iraq and in 1998- Book under the title of (Marine Oil Pollution from Tankers Accidents).