Oil above $44 on possible production cap
Exemption from global cap may be revoked after their production climbs
OIL HOVERED above $44 (R588.36) a barrel as the market weighed the likelihood and potential effectiveness of Libya and Nigeria capping production. Investor scepticism over whether Libya and Nigeria will agree to limit supplies kept futures trading in a $1.19 range in New York. BNP Paribas reduced its price forecasts for this year and next because supply growth elsewhere is diluting the impact of the curbs led byOpec. The possibility of Libya and Nigeria agreeing to production caps is giving investors more hope that prices may rise, although the uncertainty is causing “a see-saw effect”, Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said. “People are worried that it could turn out to be a prolonged affair getting them to the table to sign off on something.” Oil has traded below $50 a barrel since May in New York amid concerns that elevated global oil inventories and rising output from the US and other producers will offset cuts by Opec and its partners. West Texas Intermediate for August delivery rose 38 cents to $44.61 a barrel at 12.10pm on the New York Mercantile Exchange. Total volume traded was about 15 percent above the 100-day average. Prices fell $1.29, or 2.8 percent, to $44.23 on Friday.
LIBYA and Nigeria, which had both boosted oil production since they were exempt from global cuts this year, might be asked to cap their crude output soon in an effort to help re-balance the market, Kuwait Oil Minister Issam Almarzooq said.
Members and non-members of Opec had invited the two nations to their committee meeting in St Petersburg, Russia, this month to discuss the stability of their production, Almarzooq said on the sidelines of an energy conference in Istanbul, Turkey.
Almarzooq is the chairperson of the committee monitoring the compliance of Opec and non-Opec suppliers with output cuts that started in January and have been extended to March.
“We invited them to discuss the situation of their production,” Almarzooq said. “If they are able to stabilise their production at current levels, we will ask them to cap as soon as possible.
“We don’t need to wait until the November meeting to do that,” he said, referring to the upcoming Opec meeting scheduled for November.
Crude sank into bear territory last month amid concerns the cutbacks by Opec producers, Russia and other allies are being partially offset by a rebound in supply by Libya, Nigeria and US shale output. Libya and Nigeria were both exempt from the cuts because of their internal strife.
The two countries came into focus after they seemed to resolve some of the political challenges that had slashed their production.
Libya’s oil output has climbed to more than 1 million barrels a day for the first time in four years. Nigeria’s
Libya’s oil output has climbed to more than 1 million barrels a day for the first time in four years.
production rose 50 000 barrels a day last month, according to a survey.
“Capping Libya and Nigeria might help, but won’t cut the supply by much,” Abdulsamad Al-Awadhi, a London-based analyst and Kuwait’s former representative to Opec, said yesterday.
“Opec needs to have better compliance, and it must respect the right of Libya and Nigeria to go back to the market. Other countries that raised output while Libya and Nigeria are out should do more and give space to these two countries to go back to the market.”
Almarzooq said he saw the oil market moving in the right direction. Growth in the number of operational oil rigs had started to slow, and crude inventories were declining.
Benchmark Brent crude, which has fallen 17 percent this year, gained as much as 47 cents yesterday in London and was trading at $46.94 (R627.68) a barrel at 7.24am local time.
Output at older oil fields from China to North America – comprising a third of world supply – fell 5.7 percent last year, the most since 1992, according to Rystad Energy. It would drop about 6 percent this year if oil stays at current prices, the consultant said. US crude drillers increased the rig count last week by seven to 763, Baker Hughes said on Friday.
Giving Libya and Nigeria exemptions to production cuts was a collective decision, and any proposal to include them in Opec’s plans would also require a joint decision, secretary-general Mohammed Barkindo said at the event in Istanbul.
He said it was still too early to discuss steeper cuts by the group and its allies.
The Opec/non-Opec ministerial monitoring committee would discuss the impact of the output curbs on the market at the July 24 meeting, Almarzooq said. Deepening the reductions under the current agreement is not on the agenda, he said.
“It is too early to discuss deeper output cuts by Opec/ non-Opec producers participating in the agreement to curb production,” Almarzooq said. “We just finished the meeting in May, and we need to give it more time.”