Questionable Statements Support Libya And UAE's Commitment to OPEC Extension

Tuesday December 5, 2017

If industry sources are to be believed, a newcomer to the deal and a cutback cheat are now committed to the Organization of the Petroleum Exporting Countries (OPEC) efforts to bring about market rebalance, seemingly on the strength of the cartel renewing its commitment to the end of 2018.

A source "familiar with the matter" told Bloomberg that Libya will keep its crude production stable at about 1 million barrels per day (bpd), in line with OPEC's November 30 agreement; the source added that neither Libya or Nigeria, which had also previously not been part of the cutbacks, were given a country-specific limit for their production by the cartel.

Meanwhile, industry sources told Reuters that the United Arab Emirates' crude output for November fell to 2.9 million bpd in order "to increase its compliance with a global pact to curb production."

However, the source conceded that the drop was partly due to oilfield maintenance, and no ratio was offered as to how much was the mandatory downtime compared to a genuine effort to abide by OPEC's rules.

Still, Reuters explained the UAE's past failure to achieve full compliance is because the country is "using a higher baseline for its cut than the one stipulated in the agreement" and stated that it "has been slashing oil exports in a bid to demonstrate its commitment."

Even if the intent of these two countries is genuine, there's no getting around the likelihood that the cutbacks in 2018, as was the case this year, will face a multitude of challenges, including allies refusing outright to join the deal.

That is already the case with Indonesia, whose deputy energy minister, Arcandra Tahar, on Tuesday said will maintain a freeze on its membership with the cartel.

Indonesia's membership was suspended in 2016 when it refused to reduce its production rates, and earlier this year Tahar said he would seek to rejoin OPEC only if it was exempt from the cuts.

Although civil unrest has made inroads in its production capabilities, Libya along with Nigeria were up until recently viewed a major spoilers of OPEC's cutbacks, with the former's production achievement of over 1 million bpd in July (only slightly above the rate it is now being credited for maintaining in accordance with OPEC) seen as a major impediment in the cartel's effort to reduce the global crude glut.