Oil output to dip as Libya recovers

Gulf members of OPEC will cut their output of oil once Libya’s production is back on track, Abdullah Al Badri, Secretary General of OPEC, said this week.

By Sara Hamdan

Published: Mon 26 Sep 2011, 9:16 PM

Last updated: Tue 7 Apr 2015, 10:00 AM

Saudi Arabia and other Gulf producers raised output this summer to make up for the stall in Libyan exports that resulted from the uprising against Col. Muammar el-Gaddafi and the international sanctions imposed against his regime.

Now, “as long as Libya starts to produce more and more, it is in the other OPEC members’ best interest to produce less,” Badri told the Gulf Intelligence Energy Markets Forum in Dubai. “I don’t talk to member countries individually about this; the market sorts itself out.”

In August, Saudi Arabia raised its production of oil and attempted to persuade other OPEC members to do the same in order to stabilise oil prices amid uncertainty in the global economy.

To help compensate for the international market’s loss of 1.6 million barrels a day of Libyan crude as early as February, Saudi output rose above 9.8 million barrels a day by June from around 9.1 million in February. That was trimmed back to 9.6 million barrels a day in July, after the June announcement by the International Energy Agency of a planned 60-million-barrel release from the United States and other developed nations’ stockpiles; but it rose again to about 9.8 million barrels a day in August, according to Reuters, based on figures from the Joint Organisations Data Initiative, a producer-consumer information exchange programme. OPEC’s 12 member countries expect Libyan oil production to recover enough to reach one million barrels a day within six months, Badri said.

Facilities in the eastern and western border areas of Libya, like the fields of the Italian company ENI near the Algerian border and fields operated by Repsol of Spain and Total of France in the west, have reported no damage and continue to produce up to 600,000 barrels of oil per day in total, he said. Facilities in the center of the country, however, have been affected and output has fallen.

Damage to facilities includes broken instruments, which he said was a bigger challenge to resuming full production than any posed by security issues.

Demand for OPEC crude oil is expected to hit about 30 million barrels a day this year, at a time when the OPEC price basket, an average oil price from a collection of different crudes produced by member countries, has been above $100 a barrel since February, according to data from Gulf Intelligence.

“Because of the Libyan crisis, there is a risk premium in the oil market from $16 to $20,” Badri noted. Still, if prices remain at these levels through the rest of the year, OPEC should see the total annual oil revenue of its members exceed $1 trillion for the first time. While higher oil prices translate into greater revenues for Gulf states, analysts at the forum warned that diversification into other sectors remained key for healthy, sustainable economies.

“High oil prices are hiding problems that are being pushed to the background, but that policymakers need to address,” said Marios Maratheftis, head of research of Middle East, North Africa and Pakistan at Standard Chartered Bank.

That presents an ongoing challenge for regional policy makers in the Gulf, where the hydrocarbon sector can make up as much as 80 per cent of government revenues, he and others noted.

“A larger, younger population should mean more demand for energy, but if people are unemployed and unhappy, it presents a bigger risk,” said Rabea Ataya, chief executive of the regional job site bayt.com. “This is a real, immediate threat to what is going on in the region.”


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