Two weeks after an Opec-led deal to extend oil output cuts until March, some Opec delegates are questioning whether the agreement will be enough to reduce a glut in supplies and lift prices. Prices have fallen more than 10 percent to below $50 a barrel since the Organization of the Petroleum Exporting Countries and allies agreed on May 25 to prolong a deal to cut about 1.8 million barrels per day (bpd) until the end of March. The deal was initially due to run during the first half of 2017.
Even a political dispute between Gulf states, the source for most of Opec's crude, has failed to drive prices higher. Instead, eyes are trained on Nigeria and Libya, two Opec states that were excluded from the regime of cuts to help them recover from years of unrest that had hurt production. Both now report rising output. This is adding to concerns among some in Opec about the effectiveness of the accord to reduce output, whose impact is already being eroded by surging US shale production.
One Opec delegate told Reuters that a deal to curb production "without freezing Libya and Nigeria is useless." Nigeria's exports are expected to reach a 15-month high in June of about 1.75 million bpd. Libyan output has hit its highest since October 2014, rising above 800,000 bpd.
At the May meeting, Opec discussed whether to assign output caps to Nigeria and Libya but agreed not to. The group also considered a larger production cut, an idea that it could revive in future, delegates have told Reuters. A second Opec delegate also said on Friday that it was not clear that the level of existing cuts was enough. "It's difficult to say. We hope so," the delegate said. "We need to wait another month to see how it develops. There are a lot of factors involved."
A third delegate said oil-market fundamentals were improving, indicating the current drop in prices was not driven by supply and demand but rather by speculators. However, two other delegates said the oil price drop was temporary and the current supply cut pact was enough. "It is not a cause for alarm - it is normal," one of them said of the price fall, adding that he believed the market would still rebalance in the second half of the year. Oil prices have recovered from below $30 a barrel in 2016, helped by the pact. But with the price hovering below $50 now, it is half its level of mid-2014 and less than the $60 top exporter Saudi Arabia has said it would like to see.