After a successful meeting where OPEC and its ally nations finally agreed on the 6th of June 2020 at the virtual conference to extend on their oil-production cuts through July, reports from Africa suggested that two of Libya’s oilfields would reopen soon. Could this be a hurdle for the oil cartel to scale through as prices soar on capped output by its members?
Sequel to my last piece, who will ruin the OPEC+ party? Bearish traders were hoping for an unsuccessful meeting this weekend. There were indications that few member nations were going to ruin the agreements because they found out some members were cheating. Fortunately, Saudi and Russia were able to yield their influence on these member nations to compensate for their failed quotas and extend their production cuts for extra months. Mexico did what we expected Mexico to do as they insisted on sticking on the April agreement and not extending.
However, Mexico’s stance could not affect the success of the OPEC meeting held this weekend. Iraq and Nigeria agreed to extend their quotas to compensate for their negligence in complying with the previous agreements. After settling what happened to be the tempest in the teapot, OPEC moved on to have a successful meeting. The success of the conference has gotten prices soaring these past few days as the Bulls now target the $50 range.
But would that be possible with incoming oil supply from Libya? Earlier in April, OPEC decided to exempt Libya from its oil production cuts due to the production lost through conflicts and its closure of ports and oilfields. Economic consideration will safeguard them from cuts, but does the world need Libyan oil at this period. “Work at the El-Sharara and El-Feel oilfields will be resumed soon,” Ali al-Theeb said in an interview late Friday. El-Sharara is Libya’s largest oilfield that has the capacity to produce over 300, 000 barrels a day. That is a third of the country’s production capacity. Libya is also Africa’s largest reserve, but conflicts since 2011 have not allowed the oil-rich nation to enjoy from its oil wealth.
Libya’s biggest oilfield might resume production after a five-month shutdown as international pressure wants to end the country’s civil war. On Sunday, the State-run National Oil Corp said that “after lengthy negotiations with militants to reopen a valve closed since January, the Sharara field would soon restart. It is believed that production will resume at an initial 30,000 barrels per day and it would take about three to four months to return to full capacity due to damage caused by the shutdown, as said in its statement.
The oilfield was supplying about 300,000 barrels before it was abruptly disrupted by attacks from Khalifa Haftar, who leads a rebel military force.
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What is happening in Libya now?
Last week, a blueprint for the settlement of the war in Libya was drafted by Egypt, and a request was sent to the UN. The request would require the UN to send invitations to all conflicting parties to Geneva to negotiate an agreement on the blueprint’s implementation. According to the report, the proposal called for a truce beginning this week, and the withdrawal of mercenaries from Libya and the disarmament of their militia. Khalifa Hafter, the Libyan military commander, gave consent to this ceasefire proposal.
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This event allowed production to resume, although there were reports on Tuesday that production had been stopped for the second time this week. The situation remains volatile as analysts believe there is still some volatility in the North African country. The shutdown of these oilfields has crippled the country’s primary source of income. Libya is safe from OPEC cuts because years of war have ravaged the nation financially, and it must recoup its losses. But when Libya would resume peaceful production and restructuring is a question, only a few can answer as the situation does not look resolved yet.