Iraq oil minister sees $70 crude by end 2015

By Ahmed Rasheed and Samia Nakhoul, Reuters

Posted at Mar 27 2015 10:50 AM | Updated as of Mar 27 2015 06:50 PM

BAGHDAD - Iraq's Oil Minister Adel Abdel Mehdi predicted world oil prices could reach $70 a barrel by the end of 2015 and played down the impact of the emerging conflict in Yemen on prices.

A global slump in oil prices has slashed government revenue in Iraq, prompting the OPEC producer to renegotiate contracts with oil majors as it faces a costly military campaign against Islamic State militants.

"In January prices reached the bottom and they can't go any lower than that," Abdel Mehdi told Reuters in an interview on Thursday. "Now they're going up, slowly but steadily. They will go up and maybe reach $70 by the end of the year".

Brent oil rallied for a second straight day on Thursday to more than $59 a barrel after Saudi Arabia and its Gulf Arab allies launched air strikes in Yemen, sparking fears of a wider regional confrontation that could disrupt world crude supplies.

But Abdel Mehdi said the impact of Yemen on crude prices would be short-lived: "Of course political issues such as the crisis in Yemen can give some push to the ascending line of prices, but it will have temporary effect."

The fall in world oil prices means Baghdad is now paying companies much more than it would be under the production-sharing model followed elsewhere, and is seeking to renegotiate the terms of its contracts.

International firms operate in Iraq's southern oilfields under service contracts, currently based on a fixed dollar fee for additional volumes produced - a formula which has seen Baghdad's bills balloon just as its oil revenue collapses.

Abdel Mehdi said he had met with Royal Dutch Shell on Thursday to discuss amending its contract favourably for both sides, but stressed that nothing had been finalised with the major or any other company.

"We are still really in the negotiation stage. Nothing has been signed yet with any of the IOCs", he said.

Abdel Mehdi said any revision of contracts would not result in major changes to the deals or their structure, and that a production target of 9 million barrels by 2020 remained firmly in place. "We stick with our schedules," he said.

Iraq currently exports 2.9 million barrels per day (bpd) of oil, and Abdel Mehdi said the average for March was on track to hit 3 million bpd.

The oil minister said Iraq would try to repay oil companies the $9 billion of payments they are still owed from 2014 by lifting crude from Kirkuk or Basra before the end of June.

Asked whether Iraq was concerned about the possible return of Iran to the oil market in the event a deal was reached between Iran and world powers on the nuclear issue, Mehdi said stability in the region was the most important thing.

"The gains will be much greater if we have succeeded negotiations between 5+1 with Iran," Mehdi said even though if sanctions were lifted on Tehran's oil sales, supply would increase, putting downward pressure on prices.

OPEC is due to meet in June, and Abdel Mehdi said he saw no sign Saudi Arabia would reduce production: "I don't think they have the intention of doing do so. I think they are defending their market share," he said.