Russia called on OPEC to limit oil output rises from its members Libya and Nigeria in the near future, as it hosted a meeting of key OPEC states on Monday to discuss ways to prop up oil prices. OPEC has agreed with several non-OPEC producers led by Russia to cut oil output by a combined 1.8 million bpd from January 2017 until the end of March.
OPEC states Libya and Nigeria are exempt and their production has been rising. The deal to curb output propelled crude prices above $58 a barrel in January but they have since slipped back to the $45 to $50 range as the effort to drain global inventories has taken longer than expected. Rising output from U.S. shale producers has offset the impact of the output curbs, as has climbing production from Libya and Nigeria, which were granted an exemption from the cuts to allow their industries to recover from years of unrest.
Russia’s energy minister Alexander Novak said on Sunday that Libya and Nigeria were approaching the moment when their output should be capped due to significant rises in recent months. “I think that these countries should join other responsible oil producers and contribute to the market stabilisation initiative as they reach a stable level of output,” Novak told the Financial Times.
Libya has been producing over one million bpd, below its capacity of 1.4 million to 1.6 million bpd but near its record high since unrest erupted that toppled former leader Muammar Gaddafi in 2011. Nigeria has also ramped up output in recent months. The two countries have now increased their production by around 700,000 to 800,000 bpd since the OPEC-led pact was agreed. OPEC sources told Reuters on Saturday that Nigeria could cap output if it managed to sustain production at 1.8 million bpd for 90 days. They also said Libya could struggle to sustain output at above 1 million bpd and hence a cap was not needed. Saudi Arabia has signaled that it was prepared to accommodate rising output from Libya and Nigeria, but stressed that additional measures should be taken by all producers. Russia said it was willing to further cooperate with OPEC.
However, the option of deeper output cuts has so far been ruled out, OPEC sources said. Non-OPEC member Oman’s oil minister Mohammed al Rumhy told reporters he saw no need for additional production cuts from OPEC and non-OPEC. OPEC Secretary-General Mohammad Barkindo said market rebalancing would accelerate as demand would pick up in the second half of the year. The oil ministers and officials are attending a meeting in the Russian city of St Petersburg of a ministerial committee that monitors the pact, known as the JMMC. The committee meets again in a few months before OPEC’s formal November gathering. Russia and Saudi Arabia, both members of the JMMC, face mounting pressure to prop up oil prices. Russia, which is heavily reliant on oil revenues, is holding a presidential election next year. Saudi Arabia needs higher prices as it wants to list its state giant oil firm Saudi Aramco next year. It has also faced several years of record budget deficit and has had to dip into its foreign exchange reserves to plug fiscal holes.