The political situation in Nigeria and Libya could determine whether major producers succeed in a plan to boost the price of oil beyond $60 a barrel — or whether it stays in the doldrums.
At the end of November the Organisation of the Petroleum Exporting Countries (Opec) agreed to reduce oil output by 1.2-million barrels a day from the beginning of this year. Nonmember countries agreed to reduce their production by 558 000 barrels a day.
This would boost the market out of a long slump, and would encourage those sitting on large reserves to start using bunkered supplies.
The low oil prices have been credited with keeping inflation and the prices of agricultural produce in check throughout the world — but have also been blamed for unrest in countries where national budgets were hit hard when projected income failed to materialise.
Neither the Opec members nor the nonmember countries that were party to the agreement are expected to meet their commitments fully. But analysts predicted that even a partial reduction in supply could push the price of a barrel above $60 before the end of this year.
A cap on the price is expected as United States oilfields kick into higher gear again as prices rise — and perhaps as the country’s new president demands greater local production.
But the wildcards in the equation are Nigeria and Libya, both of which intend to ramp up oil production significantly and quickly — yet both face great uncertainty in keeping those promises.
In a New Year’s message, Nigerian President Muhammadu Buhari said his government will seek a lasting peace settlement with militants in the oil-producing southern Niger Delta region.
Persistent attacks on oil infrastructure in that area are believed to have reduced the country’s oil output by about 400 000 barrels a day, a significant fraction of the output reduction Opec has engineered. Militants want a greater share of the country’s energy wealth to go to the impoverished oil-producing swampland.
In Libya, which is the holder of Africa’s biggest crude reserves, the National Oil Corporation this week said it had increased output by some 85 000 barrels a day since December and hoped to add another 200 000 barrels a day by March.
That will still leave it 700 000 barrels a day short of the level of production it saw before the 2011 uprising, the aftershocks of which continue to cause swings in its export volumes.
Should Libya hit the target of 900 000 barrels a day, it would replace about one-third of the supplies being cut by other Opec nations.
Though a member of Opec, Libya was exempted from the December output-cut agreement. Nigeria was also allowed to boost output because of the militant campaign that damaged its flows. Iran was allowed to increase supplies in its recovery from sanctions. — Reuters, Bloomberg