Will Libya Be First To Ditch The OPEC Production Deal?

Just two weeks after it pledged to cap its crude oil production at the level of 1 million barrels daily, Libya has sent a signal that it actually has immediate plans to raise this, according to media reports.

In a rare meeting this weekend, the Prime Minister of the UN-recognized Government of National Accord met with the heads of the National Oil Corporation and the Libyan central bank to discuss funding for boosting crude oil production.

As Reuters notes, the relationship between PM Fayez Seraj and the central bank governor, Sadiq al-Kabir Sadiq, have not been the best, with regular clashes over fiscal reform and monetary policy. The tension is significant as the central bank is where the income from crude oil exports—Libya’s principal revenue source—goes.

To add to this, the overall political situation in the country remains unstable. This prompted analysts to factor in possible future oil production outages in the country in their overwhelmingly bullish oil price forecasts for 2018.

Libya, along with Nigeria, was originally exempted from the OPEC oil production cuts, agreed last November. The country, like Nigeria, is heavily dependent on oil revenues and was struggling—as it still is—with a rising budget deficit and soaring inflation amid continuing conflicts between various armed groups.

These conflicts caused a series of production outages at some of its largest oil fields last year, which had a marked bullish effect on international prices. This, however, was not the case with reports about growing oil production, despite the outages. That’s why the news about both Libya and Nigeria joining the cuts was eagerly welcomed by traders and analysts.

The two have agreed to keep their combined production at no more than 2.8 million bpd until the end of 2018. Yet this latest report about plans to fund a production increase could rekindle doubts about how long some OPEC members would stick to their promises to curb production.

By Irina Slav for Oilprice.com