Compensating for supply shortfalls from Venezuela, Libya, and Iran may prove a challenging task for OPEC in the months to come.
This summer everything changed again in Libya. Oil has been taken hostage not by bandits or crooks but by a presidential hopeful who had liberated the ports two years ago.
There once was a time when OPEC did not need to rely on outside producers to achieve its policy goals. That time has passed. The old OPEC is dead, and OPEC+ now stands in its place. What will its reign bring?
A clumsy exit strategy, producers cheating on quotas, or a rapid response from U.S. shale producers could undermine the effectiveness of the deal. Conversely, the potential for higher prices is also a stark possibility.
An extension is virtually guaranteed but today’s overwhelming consensus masks real divisions, complications and misgivings.
When producers that are inherently prone to conflict and resource nationalism lose supply, output will most likely not return to previous levels.
Libyan Oi Minister Mustafa Sanalla has facilitated a five-fold increase in oil production over the last year from a low of 200 thousand barrels/day last summer to 1.1 million b/d in recent weeks, despite prevailing chaos and rival governments.
OPEC’s gamble to cut production to shore up prices has not worked out the way members thought it would, but the cartel cannot be faulted for not trying. The inadequacy of its policy in the first part of 2017 means that OPEC will do whatever it takes during the second half of the year to achieve its goals.
In the aftermath of the 2014 price fall, producer countries have had to reevaluate policy and economic strategy while contending with a persistent glut that may dampen prices for some time, further undermine their budgets, and possibly cause domestic strife.
In combination with robust U.S. shale oil production, the wild cards of Libya, Nigeria, and Iraq could force OPEC and its allies to go back to the drawing board.