Iraqi oil minister says OPEC to cut production

OPEC members are expected to cut oil production when they convene in March to try to push up prices to at least $70 a barrel, Iraq's oil minister said Saturday.

Hussain al-Shahristani also identified the country's political tensions, bureaucracy and lack of funds as main impediments to developing Iraq's hydrocarbon resources.

OPEC cuts have so far failed to stop the dramatic fall in oil prices since July. The drop has hit Iraq particularly hard. The country depends on oil revenues for nearly 95 percent of its budget. As a result, the government was forced to slash its 2009 draft budget from $80 billion to $64 billion.

"The year 2009 will be a tough year around the world and that will be reflected on the oil demand and then prices will drop," al-Shahristani told a symposium in Baghdad on developing Iraq's oil and gas industry.

"In March, OPEC will convene and there will be an intention for more production cuts to shore up prices and encourage production from non-OPEC members," al-Shahristani added.

"We do believe that the price should be no less than $70 for a barrel."

In December, OPEC announced a 2.2 million barrel production cut aimed at boosting prices that have plummeted from mid-July highs of $147 per barrel. The cuts came on top of another 2 million barrel production cut instituted in the last quarter of 2008.

But oil prices have continued to deteriorate. Benchmark light, sweet crude for March delivery dropped a dollar on Friday to settle at $40.17 a barrel on the New York Mercantile Exchange.

Iraq is a member of the Organization of Petroleum Exporting Countries but is not committed to its production quota because the war-plagued country produces less than its potential.

Al-Shahristani also renewed his objection to oil deals signed between the Kurds and Western oil companies, saying they are a main "impediment" in approving the country's long-awaited hydrocarbon law because they "contradict the law and contradict Iraq's benefit."

The Kurds run a three-province semiautonomous region with vast oil reserves. They argue that the Iraqi constitution gives them the right to unilaterally negotiate and sign oil deals without consulting with the central government in Baghdad.

The Kurds' nearly two dozen deals have left politicians at loggerheads since February 2007.

"Iraq's oil sector should not be taken hostage by the current political situation and it should be freed to be developed properly," he said.

He also called on the government to ease some of its bureaucracy and enable the ministry to have a say on major contracts to speed up development of Iraq's dilapidated oil and gas infrastructure.

"Now, we have dilapidated and eroded pipelines. ... We can't buy new ones because we don't have enough money especially because the 2009 budget has not been approved yet."

Iraq, which sits on the world's third-largest oil reserves - at least 115 billion barrels - has offered 19 oil and gas fields to international companies for development in two major bidding rounds.

Iraq plans to add 4 million to 4.5 million barrels a day to its current 2.4 million barrels per day capacity over the next four to six years. The ministry plans to sign the contracts for the first round in mid-2009 and the second round by the end of the year.

A third bidding round, to be announced this year, will offer 65 exploration blocks nationwide, al-Shahristani said without elaborating.

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