BusinessDay 14 Feb 2018
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Wednesday <strong>14</strong> <strong>Feb</strong>ruary <strong>2018</strong><br />
08 BUSINESS DAY<br />
C002D5556<br />
WEST AFRICA<br />
ENERGY intelligence<br />
In association with<br />
Oil prices may force early review of supply cap deal<br />
talking points<br />
ISAAC ANYAOGU<br />
Oil prices tumbled from a high of<br />
$70 per barrel two weeks ago,<br />
falling below $60 a barrel last<br />
week Friday, the first time this<br />
year, and its worst performance<br />
in recent weeks, raising concern that OPEC<br />
and non-members may review their supply<br />
cap deal which saw about 1.8million barrels<br />
per day (bpd) excised from global output.<br />
US and Brent crude futures have slid<br />
more than 11 percent from this year’s peak<br />
in late January. Brent fell nearly 9 percent<br />
for the week while US crude dropped 10<br />
percent, the steepest weekly declines since<br />
January 2016.<br />
US West Texas Intermediate (WTI) crude<br />
settled down $1.95, or 3.2 percent, to $59.20,<br />
the lowest settlement since December 22. The<br />
session low for US crude was $58.07. Brent<br />
futures fell $2.02 a barrel, or 3.1 percent, to<br />
$62.79 a barrel, its lowest settlement since<br />
December 13.<br />
The slump below $60 on Friday was on<br />
account of record US oil production raising<br />
inventories. US crude producers pumped<br />
out an average 9.3 million barrels a day in<br />
2017 and will average 10.6 million this year,<br />
according to a US Energy Information Administration<br />
report last week.<br />
Time was when the US was a fringe<br />
player in the global oil market, now when<br />
it coughs, oil markets catch cold. Alexander<br />
Dyukov, Gazprom Neft chief executive said<br />
on Friday that an adjustment of the global<br />
oil production cut deal between OPEC and<br />
some non-OPEC members, including Russia,<br />
was possible in the second quarter of <strong>2018</strong><br />
according to a Reuters report.<br />
Dyukov also said that the global oil market<br />
was close to the balancing point and hoped<br />
that the countries would rather agree to increase<br />
production, not to cut more. Russia<br />
has cut its oil production by over 300,000<br />
barrels per day under the deal.<br />
Rebalancing of the oil market is good news<br />
for producers, especially those whose economies<br />
relies heavily on oil income. Libya’s oil<br />
production averaged more than 1 million<br />
bpd in January, the first time since July 2013,<br />
according to data provider Genscape, an oil<br />
industry intelligence group.<br />
In January, Libya pumped 1.083 million<br />
bpd of crude oil, and 1.133 million of total<br />
liquids. Analysts at Genscape further said that<br />
the African country’s oil production monitoring<br />
showed that oil fields in the country<br />
appeared to operate relatively consistently in<br />
January, without steep, significant dips below<br />
the average production levels due to weather<br />
or pipeline attacks.<br />
This indicates that the country may be<br />
turning the corner from many years of civil<br />
strife which constrained more than 600,000<br />
bpd from the country’s production before the<br />
2011 uprising which toppled its leader. Libya’s<br />
normal production was 1.6 million bpd.<br />
After the main fields and oil export terminals<br />
in Libya re-opened in 2017, production<br />
started to increase, and together with<br />
Nigeria’s recovering oil production and<br />
US shale resurgence, was offsetting part of<br />
the OPEC cuts and depressed oil prices for<br />
much of 2017. Libya’s production topped 1<br />
million bpd in July 2017, but the country has<br />
struggled to maintain that level consistently<br />
for a month<br />
Nigeria too is keen to raise badly needed<br />
revenue to pay cash call debt arrears with<br />
its joint venture partners and complete<br />
infrastructure projects. The country is keen<br />
to pump more and cannot wait to exit the<br />
supply cap.<br />
The monthly survey of S&P Global Platts,<br />
one of OPEC’s secondary sources, showed<br />
this week that Libya’s oil production averaged<br />
980,000 bpd in January, flat compared<br />
to December. Libya and Nigeria together exceeded<br />
their combined 2.8-million-bpd cap<br />
under the OPEC deal, according to a survey<br />
by Oil price.<br />
The implication of this scenario is that<br />
OPEC and its non-members in the pact to<br />
impose cuts on production may review the<br />
agreement earlier than they had anticipated.<br />
The decision from the last meeting in January<br />
was to keep cuts till <strong>2018</strong> but the mood of the<br />
market may force an early review.