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The Secretary General of OPEC, Mohammed Barkindo, believes it is too early to discuss ending the exemption from the oil production cut deal that Libya and Nigeria have been benefiting from, boosting their crude oil output in the last few months.
Speaking at the St. Petersburg International Economic Forum, Barkindo said that both Nigeria and Libya still have problems to deal with, so an output cap for either is not yet on the table. He added, however, that the extension agreed by OPEC and 11 other producers will help continue moving in the right direction with the market’s return to balance imminent.
Most observers, as well as traders, don’t seem to share the optimism. In May, OPEC’s overall output rose for the first time since the start of 2017 thanks to none other than Libya, which boosted output after its largest oil field, Sharara, started pumping again after a series of disruptions. The country’s daily average spiked to 827,000 bpd last month, the highest in three years.
Nigeria is also bumping up its production rate and the daily average may hit 2.2 million barrels this month, according to the chief executive of a local oil company, Oando. The increase will come as the Forcados terminal—the target of several militant attacks— resumes operation. The first cargo for this year was loaded at Forcados in mid-May.
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It’s no wonder, then, that international oil prices have remained subdued and even announcements like the 6.4-million-barrel draw in U.S. oil inventories that the EIA announced yesterday have failed to have any impact. What makes the situation even more concerning is that this was the eighth weekly inventory draw in a row and prices still fell, with Brent sliding closer to US$50 a barrel and WTI on the brink of falling below US$48.
Amid these developments, the need to remove the exemptions may become pressing before long. It’s another question how open Libya or Nigeria would be to such a move.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.