On February 22, Iraqi Oil Minister Ihsan Abdul Jabbar said in an interview that after oil prices rose, OPEC’s second largest oil producer, Iraq, decided to terminate an advance oil agreement with an Asian company.
In November 2020, the Iraqi government demanded early payment in exchange for a long-term crude oil supply contract from Asian companies to help ease its dire financial situation. Jabbar said the country opted for early payment agreements in January and February 2021 to maximize liquidity due to concerns that oil prices would not exceed $40 a barrel.
After crude oil prices stabilized, Jabbar said: “We decided to freeze this attempt or option but not activate it.”
According to the advance payment agreement, the winning bidder should pay approximately US$2.5 billion to the Iraqi Oil Export Company SOMO from July 1, 2021 to June 30, 2022, in exchange for 48 million barrels of crude oil (the winning bid price is approximately US$52/ barrel, about 20% lower than the current Brent crude oil price).
Spurred by Saudi Arabia’s unilateral production cuts in February and March and improved demand prospects, New York crude oil futures prices rose 22% entering 2021. The crude oil futures contract for delivery in March settled at more than $59.02 per barrel last Friday. It has risen slightly since February 22 and is within easy reach of $60.
Jabbar also said in an interview that day that he was optimistic that the Iraqi central government and the Iraqi Kurdish technical and financial team were negotiating on the 2021 federal budget and oil disputes. There may be progress towards an agreement.
Jabbar said that a formula has been agreed with the Kurdistan Region and included in the draft budget. According to the draft budget, the Kurdish region will sell 250,000 barrels of crude oil per day to the federal government at the oil price given by SOMO.
The minister said that the current Kurdish oil contracts were signed in a tense political atmosphere in the past and criticized them as “not successful now”, saying they did not ensure enough income.
The Iraqi parliament is currently discussing Iraq’s 2021 federal budget, and lawmakers said unresolved differences over Kurdish oil exports are still delaying budget approval.
Overall, Iraq froze the previous advance payment agreement, which reflects from the side that Iraq has not yet realized that it is unlikely that oil prices will fall below US$52 in the short term, and even oil prices There are opportunities for further gains in the market outlook. </p