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.
Nothing will change materially in the oil market until there’s a significant stock draw, a development that appears doubtful, which could ultimately force OPEC to change strategy once again.
There are already signs that OPEC is committed to following through with pledges, even if indicators are contradictory and vague at the moment. The oil market has stabilized in the low-to-mid $50s, indicating the group has indeed put a floor under prices for the time being.
Renewed political turmoil and the takeover of major oil terminals last month didn't stop Libyan oil production from tripling since August. How long will it last?
OPEC is expected to finalize the details of its production cut next month, but in the meantime, the entire arrangement looks like a mess, with hole after hole being punctured before it’s even been fully agreed upon and implemented.
OPEC's past cuts were successful in tightening the global oil market and lifting prices, but the agreement last week in Algiers may not be sufficient to rebalance fundamentals, particularly since U.S. shale is poised to rebound.
Historically high oil output obscures the fact that OPEC is also experiencing some of its worst-ever unplanned outages. Combined, the volumes lost to violent conflict, political disputes and other setbacks add up to almost 3 mbd.
An agreement struck with the militia that has been blockading Libya’s critical export terminals of Es Sider and Ras Lanuf could, if it holds, allow the nation to begin recouping its badly needed oil revenue.
Libya's oil production has the potential to rise now that there’s been a merger of the two national oil companies and a likely re-opening of two major ports. But a swift rebound will be difficult, not least of all because of competing groups vying for control of the country and oil facilities remaining vulnerable to attack from ISIS.