Russia and Iraq add to glut, supply most oil in decades

Oil supplies in Iraq and Russia surged to the highest level in decades, signalling no respite in early 2015 from the glut that has pushed crude prices to their lowest in five years.

Russian oil production rose 0.3 per cent in December to a post-Soviet record of 10.667 million barrels a day, according to preliminary data e-mailed on Friday by CDU-TEK, part of the Energy Ministry. Iraq exported 2.94 million barrels a day in December, the most since the 1980s, said Oil Ministry spokesman Asim Jihad. The countries provided 15 per cent of the world's oil in November, according to the International Energy Agency.

Oil slumped 48 per cent in London in 2014, the steepest decline since the 2008 financial crisis, as the Organization of Petroleum Exporting Countries refused to pare output in response to the highest US oil production in three decades. Russian Energy Minister Alexander Novak, who met with some Opec members in November, said the nation will maintain output this year and expects prices to stabilise.

"With the latest news from Russia and Iraq, the focus on rising supply remains a key negative driver for oil," Ole Sloth Hansen, an analyst at Saxo Bank A/S in Copenhagen, said on Friday by e-mail. Brent crude futures, at about $56 a barrel on Friday, may slip below $50 this year, he said.

Russian output is increasing even after the US and the European Union imposed sanctions last year in response to the country's annexation of Crimea and what they say was support for separatists in eastern Ukraine. Measures included targeting the energy sector by banning exports to Russia of some equipment and technology. The country's government gets about half of its revenue from oil and gas taxes.

Iraq deal
Iraq, Opec's second-biggest producer, reached a deal with its semi-autonomous Kurdish region last month over the Kurds' oil exports through Turkey, after years of disagreement on the territory's right to independently develop its energy resources.

The agreement "looks to have had a positive effect on exports to the north," analysts at consultants JBC Energy GmbH in Vienna said in a report on Friday.

The agreement allows the shipment of as much as 550,000 barrels a day of oil from northern Iraq to the port of Ceyhan on the Mediterranean, along a pipeline to the Turkish border operated by the Kurdistan Regional Government. This includes 300,000 barrels a day from the Kirkuk oilfields in northern Iraq, under the control of Kurdish forces since they moved to repel an offensive by militants from the Islamic State in June.

Iraq exported 5.579 million barrels of Kirkuk oil in December, equivalent to about 180,000 barrels a day, Oil Ministry spokesman Jihad said by text message yesterday. That's more than a six-fold increase from 836,000 barrels in November, according to the Oil Ministry.

Russian record
The Russian production figure is for crude and condensates, an ultralight oil that yields a greater proportion of high-value fuels. Production averaged 10.58 million barrels a day for 2014, also a post-Soviet record. Preliminary data, which didn't reflect shipments by Gazprom Neft and may be revised, showed a decline in exports.

The previous post-Soviet oil production record was 10.64 million barrels a day in October, CDU-TEK data show. It rose above 11.4 million barrels a day in 1987, the Soviet-era peak, data from BP Plc show.

Brent crude, used to price about half of the world's oil including Russia's main export blend Urals, fell 3.2 per cent to $55.48 a barrel on the ICE Futures Europe exchange at 12:33 pm in London on Friday, the lowest since May 2009.