• 5 minutes Rage Without Proof: Maduro Accuses U.S. Official Of Plotting Venezuela Invasion
  • 11 minutes IEA Sees Global Oil Supply Tightening More Quickly In 2019
  • 14 minutes Paris Is Burning Over Climate Change Taxes -- Is America Next?
  • 7 hours Waste-to-Energy Chugging Along
  • 3 hours U.S. Senate Advances Resolution To End Military Support For Saudis In Yemen
  • 3 hours Contradictory: Euro Zone Takes Step To Deeper Integration, Key Issues Unresolved
  • 8 mins Venezuela continues to sink in misery
  • 5 hours Let's Just Block the Sun, Shall We?
  • 13 hours Zohr Giant Gas Field Increases Production Six-Fold
  • 11 mins What will the future hold for nations dependent on high oil prices.
  • 15 hours Regular Gas dropped to $2.21 per gallon today
  • 12 hours No, The U.S. Is Not A Net Exporter Of Crude Oil
  • 1 day Air-to-Fuels Energy and Cost Calculation
  • 8 hours UK Power and loss of power stations
  • 23 hours $867 billion farm bill passed
  • 9 hours EPA To Roll Back Carbon Rule On New Coal Plants
  • 14 hours Global Economy-Bad Days Are coming
Alt Text

What Would A New OPEC Look Like?

The global oil markets could…

Alt Text

Are Floating Reactors The Future Of Nuclear Energy?

Russia’s Rosatom is a world…

Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

More Info

Trending Discussions

Will Capping Libyan And Nigerian Output Salvage The OPEC Deal?

Since they struck the production cut deal in late November, OPEC and the non-OPEC partners that are part of the agreement have seen U.S. shale ramping up crude production more than anyone has expected, undoing the cartel’s efforts to bolster oil prices. But over the past three months, OPEC has also seen its very own Libya and Nigeria—exempt from the output cuts on the grounds that militancy had crippled their production—boost their respective production to the point of further unnerving the oil market and complicating even more the cartel’s not-so-successful efforts to reduce global oversupply and prop up oil prices.

Although Saudi Oil Minister Khalid al-Falih tried to (again) talk up prices and said in mid-June that the market was headed “in the right direction” and that Libya and Nigeria “shouldn’t be considered a threat to the initiative”, OPEC is thinking of putting a ceiling on the crude oil outputs of Libya and Nigeria, The Wall Street Journal reported on Friday, citing OPEC delegates.

Capping Libya and Nigeria’s production is probably the only supply-side control mechanism that OPEC has left. Still, according to analysts, the cartel made a mistake while drafting the initial agreement, because it had not set specific conditions—output figures, for example—under which Libya and Nigeria would be asked to join the cuts, or asked not to pump more than a given ceiling.

According to the latest S&P Global Platts OPEC survey published last week, Libya’s output averaged 810,000 bpd in June, up by 80,000 bpd from May. Last month’s average output was the highest since October 2014.

Libya is right on track to reach its goal to raise crude output to 1 million bpd by the end of July. The National Oil Corporation (NOC) plans to further raise production to 1.32 million bpd by the end of 2017.

In Nigeria, production increased to 1.78 million bpd in June, up by 50,000 bpd from May, according to the Platts survey.

The combined production of Nigeria and Libya is currently 380,000 bpd above their total output in October 2016, the month that OPEC used as a benchmark to base its collective 1.2 million bpd cut.

Relative stability in both African countries point to further crude output increases in the coming months. According to analysts, if Libya and Nigeria prove their production recovery is sustainable, they should be asked to join the pact.

The Joint OPEC-Non-OPEC Ministerial Monitoring Committee (JMMC)—which is meeting on July 24 in St. Petersburg, Russia—has invited Libya and Nigeria to discuss their production, Kuwait’s Oil Minister Issam Almarzooq told Bloomberg on the sidelines of an energy conference on Sunday.

“If they are able to stabilize their production at current levels, we will ask them to cap as soon as possible. We don’t need to wait until the November meeting to do that,” Almarzooq said.

Related: Corpus Christi Set To Become The Next Oil Export Hotspot

Nigerian Oil Minister Emmanuel Ibe Kachikwu said at the end of May that his country was not opposed to joining the pact, but it would need more time to see if the output is sustainable.

Ten days ago, a new militant group in the oil-rich Niger Delta said it was calling off the war that it had threatened to start on June 30, and has decided to “give peace a chance”.

Although attacks have subsided, the security situation in Nigeria is still fragile, as is the one in Libya. Nevertheless, the two African producers exempt from the cuts are raising output and pressuring oil prices down.

“With the return of Nigeria and Libya, OPEC’s production is currently very close to the average of 2016,” The Journal quoted Olivier Jakob, head of Swiss energy consultancy Petromatrix, as saying in a note last week.

The recovery of those two countries’ output—along with output from the United States—is offsetting more and more of OPEC’s cuts.

But while OPEC can’t influence supply from the U.S., it could ask its producers Libya and Nigeria to cap output, although it should have probably set strict parameters for the exempt producers to join the deal.

“The increase in output of both these countries has exceeded expectations amongst the vast majority. For OPEC not to devise a strategy for this has damaged market sentiment,” Richard Mallinson, a geopolitical analyst at Energy Aspects, told Platts last month, referring to the cartel’s failure to include a clause for when Libya and Nigeria could be asked to join the pact.

If OPEC asks the two counties to cap at current levels, and they agree, they would still be producing 380,000 bpd more than what they did in October, as per Platts figures. The cartel is pinning its hopes on the summer seasonal demand to draw down oversupply, but it may have damaged irreparably the market sentiment surrounding the effectiveness of the OPEC deal.

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage

Trending Discussions


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News