Planned extensions to OPEC oil production cutbacks appear to be threatened by a sudden increase in output from Libya. Libya’s oil output has increased considerably to 814,000 barrels a day, a 16% increase on the end of April. The reason for this is likely the two oil fields that were put back into production last month.
This is Libya’s highest crude output since October 14, and does not sit well with OPEC’s policy to curtail output. In 2015, Libya was producing an average of 404,000 barrels a day – after 805,000 a day in October 2014. In two weeks OPEC members will decide whether or not to cut oil production further to clear a current glut of crude supply – not to mention crude reserves.
This Libyan crude oil increase in production comes at a time when OPEC members (Organization of Petroleum Exporting Countries) and other countries are trying to reduce supplies of crude oil. The increase also coincides with an increase in North American shale oil production and the recovery of Nigeria’s oil output.
Libya, which was exempted from OPEC cuts due to its internal issues, intends to increase oil production to as much as 1.32 million barrels a day by the end of 2017. This represents an 88% increase on April’s output. In view of these factors, OPEC’s strategy to get the oil market back in balance and prevent oil prices from dropping appears to be compromised.
Two major Libyan oil fields restarted last month. The Sharara field is Libya’s largest oil field, and this came back on after a 3-week closure. The El Feel oilfield also restarted after being off-stream for two years. OPEC and its allied oil producing countries have reached a preliminary agreement to extend the cuts for a further 6 months.
The two largest oil producers, Russia (non OPEC member) and Saudi Arabia (member) supported the decision. What effect will Libya’s intended production increase have on this decision? Will the OPEC oil production cutbacks remain valid or will OPEC members think again at the next meeting?