Editor's Note: Below is an excerpt from a research note written by Hedgeye Senior Energy Policy analyst Joseph McMonigle. To read this entire note email sales@hedgeye.com.
Special OPEC Committee Meets July 24 in Russia
As oil prices continue to struggle in the mid-40s, OPEC is considering lifting exemptions from the production cut agreement for Libya and Nigeria which have both added nearly 800,000 barrels per day (b/d) in crude production since the OPEC deal was reached last November.
We are currently in a verbal intervention phase of the concept and at early stages. The market should not expect any big announcements or catalysts in the coming weeks. However, we do think this is a serious effort and could culminate with some agreement at the November 30 OPEC meeting in Vienna.
Libya and Nigeria energy officials will be invited to the upcoming OPEC/Non-OPEC Joint Ministerial Monitoring Committee (JMMC) meeting on July 24 in St. Petersburg, Russia. There are press reports today that the Nigerian Minister will not attend but we believe he will be persuaded by OPEC Secretary-General Mohammed Barkindo, himself a former Nigerian government official, to attend the gathering. We expect the Libyan Minister will also attend.
Libyan production has now surpassed one million b/d and combined with increased production from Nigeria is undermining the OPEC production cut agreement. While the political and security situation in Libya is still unstable, we have been impressed by the optimism from operators on the ground.
It is still unclear if lifting the exemption would result in caps at current production levels or cuts like other participants in the deal are doing. While we expect resistance to the idea from Libya and Nigeria, we think an agreement could be crafted that allows for some type of escape hatch if the political or security situation in either country deteriorates.
