OPEC Output Needs to Rise to Avoid Shortfall Caused by Ongoing Member Strife

An extra 650,000 barrels a day over 2017 will have to be pumped to achieve equilibrium between supply and demand.

Although the International Energy Agency (IEA) predicts that world oil production in 2017 will nearly match consumption and thus end several years of oversupply, Bloomberg notes that this will quickly turn into a "significant shortfall" scenario if the problems in Venezuela, Nigeria, Libya, and other countries aren't resolved soon.

Bloomberg points out that for the IEA's prediction to come true, the Organization of the Petroleum Exporting Countries (OPEC), which has sustained repeated attacks for its market share first policy of production, will "have to pump an extra 650,000 barrels a day over the year" – and this means finding solutions to the militant attacks, political strife and economic chaos plaguing its member countries.

Bloomberg also calculates, based on IEA data, that by end of this year OPEC will need to pump nearly 1 million barrels above last month's production level to keep the market in balance.

However, it's questionable whether any of the problems that have slowed production among members will be resolved anytime soon: Venezuela's economy is such that its citizens are said to be killing animals for food; its output in May was 2.29 million barrels per day (bpd) , the lowest since 2009, and production is expected to drop by 100,000 bpd this year.

Despite the Nigerian government currently talking with militants to end their attack on oil fields, that country's production has dropped to a 28-year low of 1.37 million bpd according to the IEA, or 480,000 below full capacity.

As for Libya, it pumped 270,000 bpd in May compared to 1.6 million bpd  prior to Moammar Qaddafi's ouster in 2011, and many of its oil fields and terminals are now controlled by militants with conflicting interests.

In lieu of conflict resolution, Bloomberg eyes OPEC members such as Iran and Saudi Arabia as potentially averting an inventory shortfall; the former is set to pump over 3.7 million bpd next year compared to its five year high this year of 3.6 million.

Summarizing the situation is Amrita Sen, chief oil analyst at  Energy Aspects Ltd., who said the IEA "is highly optimistic in its assumption of elevated OPEC supplies next year.

"Even though many view outages in Libya and Nigeria as unplanned, we would argue they are partly symptomatic of low oil prices and unlikely to be resolved any time soon."

Earlier this week, the IEA in its latest monthly report said oil prices won't rise much higher than current levels as supply and past inventories remain high, but demand is steadily rising.