By Donald Levit
On July 17, 2017, the Prime Minister of Libya’s Government of National Accord (NGA) Fayez al-Sarraj announced that the country is close to reaching crude oil production of 1 million barrels per day.
Prime Minister al-Sarraj is certain that this achievement is proof of the current government’s ability to steer Libya out of a period of civil strife and into a new prosperous chapter in the country’s history. When NGA’s first meeting occurred in January 2016, Libya produced a meager 300,000 barrels per day.
Before civil war broke out in Libya in 2011, the country produced 1.6 million bpd. Its proximity to Europe and a relatively cheap cost of producing a single barrel of crude oil (as little as $1/barrel at some fields) made Libya a no-brainer for many consumers on the other side of the Mediterranean. However, as infighting engulfed the country, that production level shrunk more than fivefold.
While Libya’s closest frenemies within OPEC reduced their oil output to stabilize the market, the North African country could be in a prime position to snag some market share. Saudi Arabia, the UAE, and Kuwait are cutting their production, and Iran is taking longer than it would want to elevate output back to its pre-sanctions level.
At the same time, Libya is completely exempt from the need to reduce crude production, which has declined dramatically long before OPEC agreed on their cuts. With things as they are currently in the global oil market, it couldn’t be a better time for Libya to restore its former status as a major oil supplier.
Libya is looking to reach the 1-million-bpd mark by the end of July and 1.32 million barrels per day by the end of the year, which is possible keeping in mind the progress that Libya has made so far.
Of course, all is easier said than done, as Libya’s astonishing progress can’t escape the eyes of Saudi Arabia and its allies. With oil prices having a hard time keeping at $50 per barrel, even with global producers’ efforts to reduce the oversupply, OPEC is carefully rethinking its stance on Libya and Nigeria (another exempt producer).
The cartel is reviewing the possibility of placing a cap over these countries’ oil production before they simply outdo the work of other members.
OPEC’s decision has yet to be made, but there is no doubt that it will shape the oil market for the next several months.
Donald Levit is a strategist for economiccalendar.com. He specializes in a fundamental approach while informing traders of relevant economic data. He earned his Bachelor’s in Finance from Baruch College’s Zicklin School of Business in New York City.