By Adedapo Adesanya
Oil prices went bearish on Thursday after the production output in Libya returned to 1.25 million barrels per day, the level the country was pumping before the port blockade in January.
The return of Libyan oil to this level is a huge source of worry for the Organisation of the Petroleum Exporting Countries and its allies, (OPEC+), considering it is exempted from the output cut deal at the time the pact was signed.
The outlook on global oil demand is clouded again by the second coronavirus wave with further downward forecast made this month from OPEC and the International Energy Agency (IEA).
The North African producer was pumping less than 100,000 barrels per day due to the eight-month-long blockade that ended in September after the Libyan National Army (LNA) lifted the blockade on Libyan oil fields and terminals.
Since then, Libya’s National Oil Company (NOC) has gradually lifted force majeure on the oil terminals and oilfields leading the country’s crude oil production to rise.
Within a month, Libya’s production could reach 1.3 million barrels and even though it will continue to add more , the OPEC member will not join the OPEC+ quotas until its output stabilizes at 1.7 million barrels per day.
But the situation yesterday dragged the oil down as the Brent crude declined by 0.45 per cent or 20 cents to sell at $44.14 per barrel.
It also softened the price of the United States’ futures, the West Texas Intermediate (WTI) crude by 0.22 per cent or 10 cents depreciation to trade at $41.74 per barrel.
It has been observed that since Pfizer and Moderna announced progress in vaccines, prices rallied but the main worry is that a vaccine would not be immediately available to many people in the world, leaving the news a short term solution because only when people can move freely around the world can demand fully return.
Widespread support for a three-month extension of the current level of oil production cuts has been proposed by OPEC with many members reportedly in support of extending the production cuts that were supposed to ease 2.0 million barrels per day in January.
Other members were in favor of even more drastic measures, which included cutting deeper come January.
The OPEC+ group will hold a full meeting on November 30 – December 1 to decide the action which would see them commit to lowering their production in order to help stabilize oil prices even as the COVID-19 pandemic and its economic consequences have affected revenue from oil production to finance their state budgets.
The price levels in 2020 has resulted in a widening of state deficits, increasing borrowing and shrinking foreign currency reserves.
