The problems with OPEC and Russia’s plan to bring the oil markets back into equilibrium don’t end with Libya. Another OPEC member exempted from production cuts is Nigeria which has been taking steps all year to ramp up oil production. Aside from the efforts being made to curb the impact of illegal refineries by stopping the so-called “sea pirates” from siphoning off oil pipelines, Nigeria is taking major steps to ramp up its own production.
The Forcados pipeline came back online last week and the Qua Iboe pipeline is currently undergoing testing. Were both of these pipelines to reach optimal production levels this would allow Nigeria to reach its pre-disruption level of 1.8MML bpd. Output is currently around 1.45MMl bpd according to the Nigerian oil ministry which suggest that barring another disruption an increase of 300,000 bpd is realistic.
Then of course there is the elephant in the room of booming production in North America where the number of active U.S. rigs has been rising for approaching four months. This is the longest consecutive rise in six years and has hit the highest level in more than two years. According to a recent forecast by the United States Department of Energy crude oil output is expected to rise by almost 1 million bpd between 12/16 and 12/17. This throws yet another roadblock in front of OPEC’s plans. The scale of the U.S. problem has increased dramatically in recent months as just prior to OPEC’s agreed upon production cuts in 11/16 the U.S. DOE forecast was for less than ¼ of that rise.
Combined with the projected rise in production from Libya and Nigeria this offsets the entirety of the OPEC and Russian planned production cuts. It seems that the laws of supply and demand have proven once again to be immune to the desires of individual actors in a market, even when those actors are some of the largest players in that market. What Russia and OPEC need to understand is that any shortfall in supply will quickly be filled by willing producers who will act in their own best interests by supplying the market demand.
