7 factors that may hamper oil price rise
* Global oil supply glut has started to wane after OPEC cuts
* Upsurge in crude production in Iran and Libya may hamper effects of production cut
* Strong dollar, likely recovery in US oil output may further dampen enthusiasm
* Iraq and Lebanon are other factors that may negatively affect rally
Members of the Organisation of Petroleum Exporting Countries (OPEC) have significantly reduced oil production in accordance with an agreement made by the cartel last year.
As a result, global oil supply glut has started to wane gradually and crude prices were on a rise with benchmark Brent Blend was set to touch the psychological mark of $60 per barrel early this week before it nosedived to hover around $50 per barrel on Tuesday. However, it again edged up on the next day.
Saudi Arabia, Kuwait, the UAE and Iraq have begun reducing their production to match their commitment to a cut of 1.2 million barrels per day from January 1, 2017.
Producers from outside the 13-country member group have agreed to cut production by 558,000 bpd under the OPEC deal to support prices. Russia has said that it was fulfilling all its obligations under the oil exporters’ deal to curtail global crude output.
However, there are a few developments taking place simultaneously which can potentially risk the oil price rally. An upsurge in crude production in Iran and Libya, who are exempted from the OPEC deal, a strong dollar and a likely recovery in US oil output may cast a shadows over the long-awaited recovery.
Iran ramps up
Iran won an exception from the global pact after it argued that it should not limit its production which was slowly starting to recover after the lifting of international sanctions in January last year.
The country’s English-language Press TV reported on Friday that state-owned National Iranian Oil Company (NIOC) was negotiating with the Philippines over exporting four million barrels of crude per month to the Southeast Asian country.
China’s Iranian crude oil imports may rise to a record this year as state-owned oil firms lift more crude through their upstream investments while extending their current supply contracts, Reuters reported a day earlier citing senior industry and trading sources.
Sources told the UK-based news agency that Tehran had already been offering aggressive discounts, aiming to coax buyers globally into stocking up for winter in anticipation of the OPEC cut, it reported on Sunday.
Libya lifts blockade
Libya’s oil production is close to 700,000 barrels per day after the restart of two major oil fields after a two-year blockade was lifted three weeks ago. Even though the national output remains far below the more than 1.6 million bpd that Libya was producing before its 2011 uprising, the National Oil Corporation says it hopes to raise production to nearly 900,000 bpd by March.
Lebanon restarts tenders
In a major breakthrough, Lebanon’s new cabinet passed two decrees last week to allow the government to restart its first oil and gas licensing round after a three-year delay.
Initially, it will offer five offshore blocks for exploration and production. The Lebanese government has estimated with a probability of 50 percent it has 96 trillion cubic feet of natural gas reserves and 865 million barrels of oil offshore.
Iraq has said that it cut oil production by 160,000 bpd since the beginning of January and it hoped that by the end of the month production would be cut by 210,000 bpd, in line with the OPEC-agreed cap for Iraq.
At the same time, the country has plans to raise crude exports from its southern port of Basra to an all-time high in February, keeping exports high even as it boasts its commitment to the oil cartel’s agreement.
The country’s State Oil Marketing Company (SOMO) plans to export 3.641m bpd of crude in February, according to trade sources and preliminary loading schedules obtained by Thomson Reuters on Tuesday, potentially beating a record of 3.51m bpd set in December. It was not clear how Baghdad will keep its word.
Meanwhile, Iraq has said that the autonomous Kurdish region was exporting more than its allocated share of oil as the country seeks to comply with the OPEC output cut.