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Angolan Oil Production Falls Rapidly

crude oil pipeline

Crude oil production in Angola is falling rapidly on lack of investments in offshore fields and this could tip the oil market into a deficit, Bloomberg reports, citing shipping schedules for June.

Angola was a few years ago the largest oil producer in Africa, while Nigeria battled militant groups in the Niger Delta, and Libya had its own problems with various groups that fought for control over its oil fields and export terminals. But now the country is delivering deeper cuts than its OPEC quota.

The latest Monthly Oil Market Report by OPEC reveals that in the first quarter, Angola produced 1.574 million bpd of crude, down from 1.633 million bpd in the final quarter of 2017. In March, average daily production was the lowest for the quarter, at 1.524 million bpd, down by 81,700 bpd from February. Some analysts believe the decline will continue, and even accelerate.

The problem, Bloomberg notes, is that Angola’s offshore fields are particularly costly to maintain, and there is not a lot of enthusiasm among oil companies to invest in this production maintenance.

“Most Angolan fields have struggled or entered into a steep decline phase after three years -- it’s the nature of the geological characteristics of Angola’s offshore production,” Energy Aspects analyst Richard Mallinson told Bloomberg. The shipping data suggests that June loadings will be the lowest in as long as a decade, highlighting the gravity of the problem.

For OPEC, however, this would likely be the opposite of a problem. After enjoying the results of plummeting oil production in Venezuela, which allowed it to substantially exceed its initial quotas, now the rest of OPEC will likely see prices climb further on Angola’s production drop.

On the flip side, if prices rise too much, this will start affecting demand, and it will also add fuel to the U.S. producers’ motivation to continue raising their own production. Ultimately, too sharp a swing of prices in the upwards direction will eventually lead to a correction that most OPEC members would not like to see.

By Irina Slav for Oilprice.com

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