Oil could fall toward $20, but not for the reason you think

By William Watts Published: Jan 11, 2016 10:21 a.m. ET It’s more about the dollar than a global glut of crude The world’s awash in oil, but that’s not what’s driving crude toward $20 a barrel.The oil-in-the-$20s club just got a new member. But Morgan Stanley’s case for another leg lower has less to do with a global glut of crude than it does with a strengthening U.S. dollar. In a Monday note by analysts including Adam Longson, head of energy commodity research, Morgan Stanley argues that traders have put too much of the blame for recent weakness in commodities, especially oil, on market fundamentals. Instead, they contend that the primary driver over the last several months has been a strengthening U.S. dollar. Oil futures last week tumbled to their lowest levels in more than a decade, extending a selloff that has seen West Texas Intermediate crude CLG6, +2.40% the U.S. benchmark, and Brent LCOG6, +2.28% the global benchmark, drop by around 70% from their mid-2014 highs. And with China likely to further devalue its yuan currency and the Federal Reserve in tightening mode, further dollar strength seems likely, the analysts said. While oil markets are undoubtedly oversupplied, after a certain point, deteriorating fundamentals have little to do with the price action. “Oversupply may have pushed oil prices under $60, but the difference between $35 oil and $55 oil is primarily the USD (U.S. dollar), in our view,” they wrote. That’s because there is “no intrinsic value” for crude oil in an oversupplied market, they argued: The only guide posts are that the ceiling is set by producer hedging while the floor is set by investors and consumer appetite to buy. As a result, nonfundamental factors, such as the USD, were arguably more important price drivers in 2015. In fact, when we assess the [more than] 30% decline in oil since early November, much of it is attributable to the appreciation in the trade-weighted USD (not the DXY). With the oil market likely to remain oversupplied throughout 2016, we see no reason for this trading paradigm to change. Share   So given the prospect for further dollar appreciation, scenarios with oil in the $20 to $25 a barrel range are possible “simply due to currency”, they write. They calculate that a 15% devaluation of the yuan would boost the trade-weighted dollar by 3.2%. In turn, that could send oil down by 6% to 15%, or $2 to $5 a barrel,” they said, which would leave crude in the high $20s. If other currencies move as well, the move could be even more pronounced, they said. Bank of America Merrill Lynch analysts on Monday also said oil prices could drop below $30 and offered the dollar as one reason. They lowered their 2016 forecast for the average price of the U.S. benchmark to $45 a barrel from $48, and cut their Brent call to $46 a barrel from $50. ========================================================= CDC, local health departments implementing a plan to monitor people exposed to new bird flu strain in Indiana Top News Fri Jan 15, 2016 | 2:18 PM EST Wall Street hammered; S&P 500 hits lowest since Oct 2014 A trader speaks on the phone on the main trading floor of the New York Stock Exchange shortly after the opening bell of the trading session in New York, January 15, 2016. REUTERS/Brendan McDermid A trader speaks on the phone on the main trading floor of the New York Stock Exchange shortly after the opening bell of the trading session in New York, January 15... Reuters/Brendan McDermid + Traders work on the main trading floor of the New York Stock Exchange shortly after the opening bell of the trading session in New York, January 15, 2016. REUTERS/Brendan McDermid Traders work on the main trading floor of the New York Stock Exchange shortly after the opening bell of the trading session in New York, January 15, 2016. Reuters/Brendan McDermid Traders work on the main trading floor of the New York Stock Exchange shortly after the opening bell of the trading session in New York, January 15, 2016. REUTERS/Brendan McDermid Traders work on the main trading floor of the New York Stock Exchange shortly after the opening bell of the trading session in New York, January 15, 2016. Reuters/Brendan McDermid A trader speaks on the phone on the main trading floor of the New York Stock Exchange shortly after the opening bell of the trading session in New York, January 15, 2016. REUTERS/Brendan McDermid Reuters/Brendan McDermid Reuters/Brendan McDermid › Wall Street hammered; S&P 500 hits lowest since..By Abhiram Nandakumar (Reuters) - U.S. stock indexes notched deep losses in volatile trading on Friday, with the S&P 500 hitting its lowest since October 2014 and the Dow losing more than 500 points, as oil prices dived below $30 per barrel. All 10 major S&P sectors were in the red and all 30 Dow components lower. The Russell 2000 small-cap index fell as much as 3.5 percent to its lowest since July 2013. The beaten-down energy sector's 4.43 percent slide led the declines, as oil prices fell 6.5 percent. The technology sector was down 4.31 percent, as Intel's weak report weighed heavily on chip stocks. "Investors are scared to death, and the fact that it's happening at the beginning of year has some historical significance," said Phil Orlando, chief equity market strategist at Federated Investors in New York. At 13:01 p.m. ET (1801 GMT), the Dow Jones industrial average was down 448.5 points, or 2.74 percent, at 15,930.55. The S&P 500 was down 52.35 points, or 2.72 percent, at 1,869.49. The Nasdaq Composite index was down 159.40 points, or 3.45 percent, at 4,455.60. The three main indexes were set to test their percentage declines on Aug. 24 when the market plunged after China devalued the yuan. The S&P 500 has fallen 13 percent and the Dow 13.7 percent from their highs in May, pushing them into what is generally considered as 'correction territory'. The CBOE volatility index jumped as much as 29.2 percent to 30.95, it's highest since September. "When we started off the year, we were at the crossroads of concern and optimism and clearly, we've gone down the road of concern pretty quickly," said Dan Farley, regional investment strategist at U.S. Bank Wealth Management in Minneapolis. Dow components Exxon and Chevron were down 2.5-4 percent, while Caterpillar dropped 4.4 percent. Intel tumbled 10 percent to $29.48, its steepest drop in seven years, after the chipmaker's results and forecast raised concerns about its growth. That weighed on the chip index, which fell 5.8 percent, its steepest drop since March. Citigroup was down 7.5 percent at $41.99, while Wells Fargo fell 4.6 percent to $48.29, after reporting largely in-line quarterly earnings. Wynn Resorts was the among the very few bright spots, rising 7.4 percent to $55.29 after reporting in-line of quarterly revenue. U.S. economic data on Friday was also not very encouraging, with an unexpected drop in retail sales and industrial output declining again in December, underscoring a worsening outlook for fourth-quarter economic growth. "It depends on where we close today, but things could get worse before it gets better," said Art Hogan, chief market strategist at Wunderlich Securities in New York. Declining issues outnumbered advancing ones on the NYSE by 2,850 to 240. On the Nasdaq, 2,527 issues fell and 289 rose. The S&P 500 index showed no new 52-week highs and 135 new lows, while the Nasdaq recorded four new highs and 477 lows. (Reporting by Abhiram Nandakumar and Tanya Agrawal in Bengaluru; Additional reporting by Dion Rabouin in New York; Editing by Savio D'Souza) Wall Street hammered; S&P 500 hits lowest since...X Next In Top News Photo Iran oil headed for India, Europe, with sanctions lifting Trending Stories 1 Wal-Mart pulls plug on smallest store format, shuts 269 stores 2 French drug trial disaster leaves one brain dead, five injured 3 Friendly no more: Trump, Cruz erupt in bitter fight at Republican debate 4 Winners of $1.6 billion Powerball jackpot still unknown 5 Tennessee couple claim winning ticket for U.S. Powerball jackpot: NBC RECOMMENDED STORIES SPONSORED CONTENT Follow Us On Twitter Follow Us On Facebook Follow Us On LinkedIn Follow Us On Google+ Follow Us Via RSS Subscribe to Newsletters | Download our Apps Feedback | Advertise with Us | Site Index | Terms of Use | Privacy Policy | Ad Choices News and Media Division of Thomson Reuters Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests. NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here. © 2016 Reuters All Rights Reserved

Legal conflict looms as oil politics deteriorate

Friday February 1, 2013 Analysis: Legal conflict looms as oil politics deteriorate As Baghdad threatens to sue Genel Energy for its independent KRG exports, the course of Iraqi oil policy - and Kurdish autonomy - may be decided in court. Exxon Must Choose: Southern Iraq or Kurdistan Posted on 30 January 2013 Iraq has again told Exxon Mobil that it must choose between working in its southern oilfields or in Kurdistan. Reuters reports that Oil Minister Abdul Kareem Luaibi [Elaibi] expects the company to make a final decision within a few days, adding: "We made it clear to Exxon in the last meeting that the answer we expected from them is either to work in the Kurdistan region or to work in southern Iraq ... Exxon Mobil cannot work in both fields at the same time." "Other oil companies that signed deals in Kurdistan region should face the same scenario", said Luaibi, "and we have informed them". Exxon's chief executive Rex Tillerson met with Iraqi Prime Minister Nouri al-Maliki and with Kurdistan's President Barzani last week to discuss operations in both areas, while industry sources said the US oil major was considering an offer from Baghdad. Friday January 25, 2013 Analysis: Exxon enters the political fray With a landmark visit to Baghdad, ExxonMobil CEO Rex Tillerson has likely inaugurated a new era of engagement in the turbulent politics of Iraq. ==== UK Open New Visa Centre in Baghdad Posted on 30 January 2013 The British Minister for Trade and Investment, Lord Green of Hurstpierpoint, officially opened the new Visa Application Centre in Baghdad along with the Foreign Minister of Iraq, His Excellency Hoshyar Zebari. For the first time, members of the Iraqi public are now able to apply for UK visas from Baghdad. ========== The ISX operates Sunday to Thursday from 10:00 a.m. to 12:00 noon (Iraq time). Prices delayed by 15 minutes. HomeAboutNewsletterArchives» SitemapAdvertisingContact» ContributorsJobsEventsReportsTenders‘Your Country’» United Kingdomبلدك العراقعربيPageviews Last Month: 235,423Oil & Gas» Ahmed Mousa JiyadConstructionIndustry & TradeBanking & Finance» Sherif SalemCommunications» Lisa KnightPublic WorksTransportationAgriculture» John SchnttkerBob NottelmannEducation & Training» Arabic TutorialMadeleine WhiteVocabularySecurity» Gary SandifordWeekly Security UpdateHealthcareBlogEmploymentInvestment» Mark DeWeaver on Investments and FinanceJared LevyLeisure and TourismPolitics» Tariq AbdellCommodities & MiningSterling Energy to Pull Out of Kurdistan Iraq to Harness Solar, Wind Power Missan to Get New Power Station Atlasjet Plans Iraq Subsidiary Iraqi Kurdistan Considers Lebanese Trade Ties LatestSterling Energy to Pull Out of Kurdistan Categorized | Oil & Gas Shell Awards WorleyParsons 3-Yr Gas Contract Posted on 24 January 2013. Tags: Basra Gas Company, BGC, Mitsubishi, Shell, WorleyParsons WorleyParsons has been awarded a three year contract by Shell Gas Iraq BV to provide project management support and services for the rehabilitation of gas facilities and infrastructure that are part of the scope of Basrah Gas Company (BGC). In November 2011, as part of a push to make better use of its gas resources, Iraq’s government signed a deal with Shell and Mitsubishi to develop the world’s largest flares reduction company, BGC. BGC is expected to commence operations early next year. It is a 25-year joint venture with state run South Gas Company holding a 51% stake, Shell 44% and Mitsubishi 5%. This joint venture is designed to capture, treat and monetise associated gas currently being flared from three southern oilfields, wasting more than 10 million dollars per day of the country’s natural resources. WorleyParsons will provide project management, technical and construction supervision personnel to support BGC in the rehabilitation inspection, engineering, procurement and construction (EPC) activities. WorleyParsons will also provide an established Project (Quality) Management System which will help manage and control the project effectively during its execution from the plant inspections through to engineering and design concluding with commissioning. The contract will be executed from WorleyParsons’ offices in Iraq and the United Arab Emirates, and will involve working in different locations around the world with front end engineering design and EPC contractors. The man-hours to be performed by WorleyParsons over the life of the contract are estimated to exceed 500,000 man-hours. Commenting, WorleyParsons’ CEO Andrew Wood (pictured) stated: “We are pleased to continue our involvement in the development of Iraq’s gas infrastructure as well as being part of this project that will significantly contribute to the sustainability of the Iraqi economy and environment. We will work closely with the development partners to ensure we create the maximum value over the lifetime of the asset.” (Source: WorleyParsons)

Iraq: Exxon pulls out, Russia wants in

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http://www.newsnow.co.uk/A/609265392?-12497:3144 Published on Nov 10, 2012 by RussiaToday FULL STORY http://on.rt.com/v4hvop The Iraqi Defence Minister has denied that the country has cancelled a major arms deal with Russia. It's in response to the Prime Minister's spokesman who'd earlier said corruption concerns caused the scrapping of a deal sealed only a month ago, to sell Iraq more than 4-billion-dollars' worth of military hardware. RT talks to government and business consultant, Christoph R. Horstel. Iraq's strategic effort to become the world's leading oil producer has taken some bad knocks but Russia appears ready to step in. Published: Nov. 9, 2012 at 1:59 PM BAGHDAD, Nov. 9 (UPI) -- Iraq's strategic effort to become the world's leading oil producer has taken some bad knocks, with the defection of Exxon Mobil and other majors to independence-minded Kurdistan, and Wednesday's expulsion of Turkey's state oil outfit from an exploration deal. But Russia seems more than ready to step in and fill the gap in foreign investment that Baghdad needs to rebuild and expand its oil and gas industry on which the country's future depends. China, eager to add Iraq's oil to its ever-widening network of resource acquisitions in Africa and the Middle East, is also knocking on Baghdad's door to take over production deals awarded largely to Western majors in 2009-10. Russia signed a landmark $4.2 billion arms deal with Baghdad in October during a visit to Moscow by Iraqi Prime Minister Nouri al-Maliki. Russian President Vladimir Putin, driving to restore Moscow's influence in a region where the Soviet Union once held immense sway, pressed Maliki to allow greater Russian energy investment in Iraq. Moscow media report Baghdad is considered inviting Russia's Lukoil and Gazprom Neft to take over Exxon Mobil's majority stake in the giant West Qurna 1 field in the south. The U.S. company effectively relinquished its stake there when it signed up with the semiautonomous Kurds in October 2011 in a direct challenge to Baghdad's authority. The Oil Ministry disclosed Wednesday that Exxon has informed the central government it wants to quit the $50 billion West Qurna 1 project in the south and sell its majority stake. "Exxon's desire to pull out ... reflects the oil majors' growing disenchantment with southern Iraq and their contrasting enthusiasm for Kurdistan which has signed a flurry of landmark deals with Western energy giants," the Financial Times observed. Lukoil, Russia's second largest oil producer, is developing West Qurna 2 with Iraq's state-run North Oil Co. Lukoil has a 75 percent share. Gazprom Neft, the oil arm of Russian natural gas giant Gaprom, recently signed two exploration contracts with the Kurdish Regional Government. Gazprom reportedly told the Oil Ministry it had suspended work with the Kurds but it hasn't confirmed that and may be hedging its bets. On Wednesday, Iraq signed an oil exploration deal with Lukoil and Japan's Inpex covering 2,100 square miles in the southern provinces of Muthana and Dhi Qar. The two agreed to invest $100 million. So far, the Western exodus from southern Iraq, where two-thirds of the country's oil reserves of 143.1 billion barrels and natural gas holdings of 126 trillion cubic feet are located, has largely benefited Asian oil companies. Industry sources estimate that by 2020 Chinese companies will account for 2 million barrels a day of Iraq's production, pegged at 3.1 million bpd in September. Fatih Birol, chief economist of the International Energy Agency, said recently that "a new trade axis is being formed between Baghdad and Beijing." The IEA predicts Iraqi production could hit 8.3 million bpd by 2035. This relationship is part of a shift that is tipping the balance of power in the energy world" away from the United States to China, the Financial Times said. When Exxon defied Baghdad and signed an exploration deal with the Kurds in October 2011, it triggered an exodus of oil majors from southern Iraq to the more liberal regime, and potentially more lucrative contracts, in Erbil, Kurdistan's capital. These included Total of France and Chevron of the United States. Royal Dutch Shell dallied with the Kurds for a while but eventually backed off breaking with Baghdad. It continues to operate in the south along with BP and other majors. However, the disenchantment among the majors who signed fixed-fee, 20-year production agreements with Baghdad underlines how their patience is running thin over inept governance, suffocating bureaucracy and infrastructure delays. These developments have heightened a long-simmering dispute between Kurdistan and Baghdad over control of oil exploration and production. This rift has immense political ramifications because the Kurds have long sought independence. Oil exports from their own enclave would give them the economic basis for statehood that could signal the break-up of the federal state that emerged after the 2003 U.S. invasion. It would also encourage other Iraqi regions unhappy with Baghdad's domination to seek more autonomy. The most prominent is the Shiite-dominated south where most of Iraq's oil reserves lie -- right next to Iran. ================== UPDATE 2-Iraq would favour CNPC, Lukoil bids for Exxon oil stake Fri, Nov 16 14:11 PM EST * Iraq says received "positive signals" from CNPC, Lukoil * Exxon opens virtual data room for West Qurna 1 oilfield * Company invites bids by Dec. 5 By Ahmed Rasheed BAGHDAD, Nov 16 (Reuters) - Iraq would favour bids by Russia's Lukoil and China's CNPC if they decided to buy Exxon Mobil's stake in the super-giant West Qurna-1 oilfield, a senior oil ministry official said on Friday. A sale of the stake to either company would significantly strengthen the position of Russia or China in exploiting Iraq's oil reserves, the world's fourth biggest. "During two separate meetings with executives from CNPC and Lukoil, Iraq informed the companies that it favours their contribution to purchase Exxon's share in West Qurna-1 oilfield," the official told Reuters. Baghdad said it had received "positive signals" from both companies that they will consider making an offer for the $50 billion project, which Exxon wants to pull out of to focus on its deal for exploration blocks in Iraq's autonomous Kurdish region. Exxon riled Baghdad by signing deals last year with the Kurdistan regional government (KRG). Baghdad rejects contracts granted by the KRG as illegal and told Exxon it had to choose between working in southern Iraq or Kurdistan in the north. The U.S. oil major opted to stick with Kurdistan, where the contracts are seen as more lucrative. "We have received positive signals from both CNPC and Lukoil that they will consider purchasing Exxon's stake in West Qurna-1," said the official on condition of anonymity. "Iraq believes that both companies have enough financial resources and the technology to manage the giant oilfield instead of Exxon Mobil," he added. DATA ROOM OPENED Exxon has now opened a virtual data room for West Qurna-1 and approached all likely buyers, inviting bids by Dec. 5, two sources said. Lukoil, Russia's second-largest crude producer which is already developing West Qurna-2, had previously said West Qurna-1 was "too big for it to swallow", but last week said it was looking into the option. That has prompted some speculation it could team up with another company, possibly CNPC, to develop the field. A spokesman for Lukoil confirmed the company had received an offer to develop West Qurna 1: "We are studying it," he said, declining to comment on whether a joint venture was on the cards. Lukoil is trying to offset a production decline at its fields in Russia, where it faces competition from state-backed companies, by acquiring foreign upstream assets. The company is active in the Middle East, Central Asia, West Africa and Latin America. But Russia's vast Arctic offshore reserves are off-limits for Lukoil due to legal restrictions that limit participation to state-controlled companies. Two CNPC sources said the company was aware of Exxon's plan to pull out of the West Qurna 1 project, but declined to confirm or deny reports it was thinking of moving into the field. In general, they said, CNPC is interested in expanding its operations in Iraq and will not entertain any projects in the Kurdish region so as not to jeopardise its existing deals with the federal government. A spokesman of the state-owned China National Petroleum Corp. declined to comment on its plans. Earlier this week, Iraq's deputy prime minister for energy, Hussein al-Shahristani, said the government was in advanced talks with potential buyers to take on West Qurna and that there were enough appropriate candidates. =============== China the frontrunner to buy Exxon out of Iraq oil Link this Share this diggEmail Print Related TopicsDeals » Quotes Exxon Mobil Corp XOM.N $88.89 +0.51+0.58% 12/20/2012 PetroChina Co Ltd 0857.HK HK$11.02 +0.02+0.18% 12/20/2012 PetroChina Co Ltd 601857.SS ¥8.92 +0.02+0.22% 12/20/2012 Iraqi workers walk in West Qurna oilfield in Iraq's southern province of Basra November 28, 2010. Credit: Reuters/Atef Hassan By Charlie Zhu and Peg Mackey BEIJING/LONDON | Thu Dec 20, 2012 5:14pm GMT BEIJING/LONDON (Reuters) - China National Petroleum Corp (CNPC) has emerged as the frontrunner to take over Iraq's West Qurna-1 oilfield from Exxon Mobil, a move that would diminish Western oil influence in Iraq a decade after the U.S.-led invasion. U.S. oil major Exxon (XOM.N) is giving up its stake in the giant southern oilfield after clashing with the central government in Baghdad over exploration contracts it had signed with the autonomous Kurdistan region in the north. Iraqi and Chinese sources said CNPC unit Petrochina (0857.HK) (601857.SS) is negotiating for Exxon's 60 percent in the $50 billion West Qurna-1 project and that there are rival bidders. Royal Dutch Shell is a minority partner. "CNPC has shown interest; they are there. And from our side, there is no problem with them taking on a bigger position. We are not sensitive about this," a senior Iraqi official said. "These are service contracts, not production-sharing contracts (which give companies an ownership stake), so it doesn't matter if they have 10 fields or one." For energy-hungry China, a major buyer of Iraqi crude, access to reserves is a strategic imperative, and Beijing is prepared to accept tougher terms and lower profits than Western oil majors and even Russian firms such as Lukoil (LKOH.MM), which have to answer to shareholders. Iraq has the world's fourth-largest oil reserves and wants to at least double its production in the next few years and ultimately challenge Russia and Saudi Arabia as the world's biggest oil nation. China's stealthy advance in Iraq, supported by piles of cash, has already given it a formidable position in prized southern oilfields, and through Chinese oil company Sinopec (0386.HK), its reach has extended into the northern Kurdish region. By taking on West Qurna-1, Chinese companies would come to dominate Iraq's oilfields with roughly 32 percent of the reserves found in service contracts awarded to foreign companies, up from 21 percent now. "PetroChina is in talks to buy the stake from ExxonMobil. There are rival bidders," a source familiar with the Chinese company said. "A decision is expected from ExxonMobil soon." Iraq has already signaled it would favor bids by CNPC and Lukoil if they decided to buy Exxon's stake and that it had received "positive signals" from both companies they would consider making an offer. But Russia's Lukoil (LKOH.MM) has made no commitment so far. Russia's second-largest crude producer is already developing West Qurna-2. FEAR OF WAR Control of oil resources is at the heart of a dispute between Iraq's Arab-led central government and the autonomous region run by ethnic Kurds in the north, which Baghdad accuses of usurping its constitutional right over oil. Kurdistan has upset Baghdad by signing deals directly with oil majors such as Exxon and Chevron (CVX.N), providing lucrative service contracts and better operating conditions than in Iraq's south. By turning its focus to Chinese and Russian companies, Baghdad would be extending a push for a more independent foreign policy, which Prime Minister Nuri al-Maliki initiated after the last U.S. troops left the country a year ago. Exxon's departure would all but wipe out the American presence in Iraq's southern oilfields. Occidental Petroleum (OXY.N) has a small stake in the Zubair oilfield development project. With oil majors now shifting their focus northward to sign deals with Kurdistan and away from Iraq's southern oilfields, leaders on both sides are warning of the risks that the dispute could slide into an ethnic war. As tensions rise, industry sources suggest Exxon might have a change of heart and decide to stay in southern Iraq. Earlier this year, Baghdad said it had called on U.S. President Barack Obama to persuade Exxon not to invest in Kurdistan. "I would be surprised if Exxon actually exits. I'm betting on some twists and turns ahead," said a Western oil executive, who works for a rival. "They might get nervous in the north." At the heart of the dispute is the oil wealth under the swathe of land know as the "Disputed Territories" along the vague internal border that includes the ethnically mixed city of Kirkuk, known to some as the "Jerusalem of the Kurds". Baghdad has warned Exxon and other companies that deals struck with Kurdistan are illegal. The Kurds say the constitution's federalism guarantees their right to develop their region's oil resources. "The government will take all necessary measures to stop Exxon working, especially in the disputed areas. They should know this is a red line they can't cross," one Iraqi oil official said. "If they think they can do that, then they will face dire consequences. They should expect everything including confiscation of their equipment and face the results of violating the constitution," he added. U.S. officials and Iraqi President Jalal Talabani have mediated to prevent a confrontation across the line dividing the two regions. Neither Baghdad nor Kurdistan appear to have the appetite for an open conflict that would risk oil exports. "Fortunately cooler heads have prevailed for now," said a senior oil industry source. "Unfortunately President Talabani may not be around to mediate in the future." Talabani suffered a stroke earlier this week, and may be unable to return to work for a prolonged period, at a time when tensions between Baghdad and Kurdistan are rising. (additional reporting and writing by Patrick Markey; Editing by Jane Baird and Alison Birrane) ======== LUKoilSays No to Iraq's West Qurna-1 Project 24 December 2012 | Issue 5042 Reuters LUKoil said Monday that it had decided not to join the development of Iraq's West Qurna-1 oil field, citing high risks, paving the way for Chinese companies to enter the project. LUKoil oversees the largest share of oil reserves in Iraq among foreign companies and is already involved in the West Qurna-2 project, while company's from China are vying for Iraqi oil. "We have analyzed all the risks and decided that since we have been implementing such a global project as West Qurna-2 without a partner, we would have taken great risks by entering another big project such as West Qurna-1," Andrei Kuzyayev, head of LUKoil Overseas, told Russian state TV channel Rossia-24. West Qurna-1 became available for LUKoil and other majors last month when ExxonMobil has informed the Iraqi government it wanted to pull out of the $50 billion project in southern Iraq. Iraqi and Chinese sources said that CNPC unit Petrochina is negotiating for Exxon's 60 percent in West Qurna-1 project and that there are rival bidders. Royal Dutch Shell is a minority partner. For China, a major buyer of Iraqi crude, access to reserves is a strategic imperative, and Beijing is prepared to accept tougher terms and lower profits than those expected by Western oil majors and even Russian firms, which have to answer to shareholders. Baghdad expects Exxon to complete the sale of its shares in West Qurna-1 by the end of December, and the U.S. company has told Iraq it is already in talks with other oil majors. The U.S. firm riled the Iraqi central government by signing deals with the regional government of autonomous Kurdistan. LUKoil has been trying to offset production declines at its brownfields in Russia's west Siberia, which accounted for some 56 percent of its total production last year, by increasing its portfolio of foreign upstream assets. LUKoil owns 75 percent in West Qurna-2 and has been looking for a partner to replace Statoil, which decided to leave the project earlier this year. LUKoil declined to name any candidates. ======================