(EnergyAsia, July 18 2014, Friday) — Citing Iraq’s worsening violence, the US Energy Information Administration (EIA) said it has slashed its forecast for the country’s crude oil production by 600,000 b/d to between 3.1 million b/d and 3.2 million b/d from now through end-2015.

The escalation of violence in northern Iraq that started in June has introduced significant uncertainty into the country’s oil production outlook, helping North Sea Brent crude oil prices rise to a nine-month high of US$115 per barrel on June 19. While prices have since fallen, the disruption to Iraqi crude oil production and exports remain a source of support.

In its latest monthly report for July, the EIA said it does not expect Iraqi crude production to exceed its recent level of 3.3 million b/d over the next 18 months.

“The recent unrest has mainly affected the 200,000 b/d of northern Iraqi crude production that supplied the Baiji refinery,” said the EIA. Iraq’s largest refinery halted operations in June because of fighting at the complex, shutting in northern production of crude. However, crude oil production in southern Iraq of 2.8 million bbl/d and in the Iraqi Kurdistan Region of 200,000 b/d has not been disrupted.

About 90% of Iraq’s oil production is concentrated in the southern portion of the country and almost all Iraqi exports leave from the southern port of Basra, which is far from current fighting. Following the March bombing of the Kirkuk pipeline between northern Iraq and Turkey, exports of crude oil from northern Iraq fell as exports from the Kirkuk pipeline halted.

More recently, northern Iraqi exports have started to return. In June, Kurdish Regional Government exports of Iraqi crude to Turkey averaged roughly 140,000 b/d, moving by truck (50,000 b/d) and a pipeline (90,000 b/d) that came online in late May.

The EIA said that until recently, Iraq had provided a stabilising influence on oil markets, helping offset high levels of OPEC supply disruptions, which exceeded 2.6 million b/d in May. Recent production growth enabled Iraq to surpass Iran as OPEC’s second-largest producer after Saudi Arabia.

Iraq’s production in 2014 rose to 3.3 million b/d in May, 150,000 b/d higher than the same month last year before falling by 200,000 b/d because of the fighting. Iraqi exports followed production higher, averaging 2.5 million b/d during the first five months of 2014 – the highest volume in more than three decades.

According to the EIA, Asia has been the primary recipient of increasing Iraqi crude exports. During the first five months of 2014, about 60% of Iraq’s 2.5 million bbl/d of crude exports supplied Asian markets, with China (25%) and India (20%) the largest customers.

The US was the third-largest importer of Iraqi oil, importing 12%, or around 300,000 b/d. US imports of Iraqi crude have historically been concentrated on the Gulf Coast (PADD 3). However, infrastructure improvements and rising U.S. domestic production have reduced demand in the Gulf, shifting Iraqi crude to refiners along the West Coast (PADD 5).