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One of the main drags on oil last month was speculation about the resumption of production in Libya and Nigeria. Huge volumes of production are idled because of violence and discord but much of it will be easy to resume once deals are in place. Libya in August was producing just 207K barrels per day compared to pre-war levels of 1.6 million barrels per day. Officials there have said bringing production back to those levels is almost as simple as flipping a switch. Recent deals have paved the way for a resumption of production and exports but an attempt to load a tanker holding 781K barrels of oil was suspended due to instability issue at Ras Lanuf.
Nigeria’s oil minister said current production is 1.75 million barrels per day. The country was pumping 2.6 mbpd a few years ago but that’s fallen off steeply in 2016. Given peace and political stability, they could pump around 3 mbpd but at the moment, it’s going to be a slow process. Still Minister Kachikwu said production will rise to 1.8 mbpd in October and 2 mbpd by year end.
In September, the West Texas Intermediate (WTI) US benchmark for crude oil has been rebounding from a critical price support around the $40 level. This rise has been driven primarily by tentative hopes for an agreement among Russia, Saudi Arabia, and potentially other OPEC members to limit oil production in the interest of steadying crude prices. Also helping to boost crude oil in the past few days has been a weaker US dollar, which has been pressured by string of relatively weak US economic data since late August.
Major oil producers are scheduled to confer on a potential output freeze in late September, and the possibility of an agreement being reached then has been helping to support crude prices. Given April’s disappointing meeting in Qatar that failed to produce any agreement, however, this upcoming meeting is on shaky ground, at best. With that said, any semblance of cooperation among major producers like Saudi Arabia and Russia has the potential to further extend the rebound for crude oil, at least for the time being, and especially if coupled with continued dollar weakness.
The weekly report from the US Energy Information Administration concerning US crude oil inventories. For the most part, the past several weeks since late July have overwhelmingly shown significantly larger inventory builds than previously anticipated. Whether or not this trend continues will have a marked impact on the current crude oil rebound.
Shale production pressuring Crude oil price to rise.
Recently renewed talks of a production freeze among OPEC and some non-OPEC producers including Russia have helped to bolster the price of oil in recent weeks, but the organization may not try to raise oil prices beyond $60 per barrel for fear of a renewed glut.
In September, Russian Energy Minister and his Saudi Arabian counterpart, met on the sidelines of the Group of 20 summit in China. A joint statement released by the ministers said “there is an imperative to mitigate excessive volatility harmful to global economic stability and growth.” To that end, the ministers agreed to “act jointly or with other producers,” to help stabilize the price, and have agreed to a Russian-Saudi task force on oil and gas, which will meet in October.
Novak mentioned a production freeze was one possible solution for stabilizing markets. His Saudi counterpart said that a freeze was not the only option, although he declined to elaborate what other tactics the two countries might consider.
OPEC members will likely be very cautious in trying to increase the price of oil, however. The group would like to see the price of oil increase, but they do not want to send prices so high that North American shale producers will lift their output. These producers need prices higher to launch significant new production, since doing so could spark a new glut that could drive prices down all over again.