VIENNA: Famed for baffling agreements, OPEC has added another chapter to a long history of deals that leave traders scratching their heads.

The cartel’s Thursday pact to raise output quotas and present it as a big cut needed more untangling than most.

The bottom line, dealers said on Friday, was an agreement that appeared to owe more to pre-positioning ahead of Iraq’s return to the group’s system of output quotas than market management.

“This looks like a tactic for Saudi Arabia to protect market share before Iraq returns to reclaim a quota,” said Oystein Berentsen, international trading manager at Norway’s Statoil.

While it will be some time before Baghdad even matches pre-war production, further down the road it has the potential to snatch second place in OPEC’s ranks behind Saudi Arabia.

With Iraq out of the picture, Riyadh stays in control of a third of the 11-member group’s production, with a quota now of 8.26 million bpd.

By raising quotas closer to the actual production it pumped before the war, OPEC has set itself a less ambitious target for cuts. And it rarely gets close to delivering on targeted limits.

Many ministers had called for a reduction in extra pre-war volumes back to existing limits of 24.5 million barrels a day. The 10 with quotas, excluding Iraq, were supplying 26.1 million in March, according to OPEC data.

Instead the meeting opted to raise quotas to 25.4 million from June 1 and, with an inflated version of recent output, sell the deal as a two million bpd cut from 27.4 million.

The result is a smaller cut and more oil in world markets than anticipated, a potentially bearish development for prices before the next meeting on June 11.—Reuters