WTI Crude Drops Below $70; Iraq Pressures OPEC With "Tactical Retreat" as Risk of Collapse Surges

TradingKey - On June 25, Eastern Time, senior Iraqi oil officials pressured OPEC to significantly increase the country's production quota, or else they would be "forced to consider all available options." Sources revealed that Iraqi officials had seriously considered exiting OPEC, but the current plan is to remain within the organization and fight for a higher quota.

As of press time, pressured by expectations of increasing global supply, WTI crude oil futures fell below $70, hitting an intraday low of $69.02, while Brent crude fell below $73, with both reaching their lowest levels since February 28.

[WTI Crude Oil Futures Trend, Source: TradingView]

ING analysts Warren Patterson and Ewa Manthey pointed out that while the number of transiting vessels has increased recently, it remains below pre-war levels. Currently, the volume of oil passing through the strait is about 6 to 7 million barrels per day (bpd), far below the pre-war level of approximately 20 million bpd. The two believe that given the market is still tightening and the recovery of oil flows through the strait is limited, the recent sell-off in crude oil may be overdone.

According to the Iraqi News Agency, the Iraqi Prime Minister expressed hope that OPEC would adjust quotas based on each member state's actual oil production capacity and population size.

Iraq is OPEC's second-largest oil producer, with normal crude exports of around 3.6 million bpd, and about 3.4 million bpd flowing through the Basra terminal before the war. Since the closure of the Strait of Hormuz, production has been cut by more than 60%. Oil export revenues in April were approximately $1.087 billion, far below the $6.8 billion in February, with oil revenues accounting for 90% of government revenue.

ANZ expects third-quarter production could recover to 2 million to 3.5 million bpd. Once capacity is restored, the current quota will severely constrain its revenue-generating capability. Iraqi oil officials admitted that the country is facing a severe financial crisis triggered by a sharp decline in oil exports caused by the war involving Iran.

Since the outbreak of the US-Iraq war, OPEC+ has raised production quotas for four consecutive months. At its June 7 meeting, it went further to increase the July target by another 188,000 bpd, with Iraq's quota increasing by 26,000 bpd.

The UAE exited OPEC on May 1. Homayoun Falakshahi, lead oil analyst at Kpler, stated that if Iraq also exits, OPEC+ could be headed for an end. Saudi Arabia has stated it will do everything possible to prevent other countries from leaving, potentially offering more flexible quotas or reducing penalties for overproduction.

If Iraq exits OPEC, the oil market will remain under pressure. First, being free from quota limits, Iraq would inevitably increase production significantly, exacerbating the oversupply. Second, OPEC+ would face the risk of collapse; once it loses its dominance over oil prices, producers like Saudi Arabia might be forced to follow suit and increase production, triggering a market share war and driving oil prices lower. In the short term, restoring Iraq's production capacity will take time, and Saudi Arabia will also make every effort to retain it.

Analysts believe Iraq's threat is more likely a bargaining chip. Iraqi Prime Minister Ali Al-Zaidi plans to visit Washington in mid-July, and the market is watching whether this visit will affect Iraq's stance within OPEC.