LONDON (Reuters) – OPEC and its allies are watching efforts to resume oil output in Libya very closely, OPEC sources said on Monday, although producers should wait to see if there is a sustainable restart before reacting.
OPEC member Libya is exempt from cutting oil output under a deal by the Organization of the Petroleum Exporting Countries and allies. A restart in Libya supply could force other producers to make further reductions to support prices.
Oil prices fell towards $42 a barrel on Monday, weakened by the possible return of Libyan production which has been virtually shut down since January, and as rising coronavirus cases added to worries about global demand.
Three OPEC sources said time was needed to assess the situation.
“At this stage, we should watch for some time,” one of the OPEC sources said, declining to be identified. “But the market is reacting much faster on bearish sentiment.”
A second delegate said the organisation was watching Libyan production very seriously, and another source close to OPEC said Libyan production was less of a concern than demand weakening again due to a new round of coronavirus lockdowns.
“The bottom line will be how governments react to COVID-19 over the next few months,” the source said. “And this is anyone’s guess.”
Libya’s National Oil Corporation (NOC) on Saturday lifted force majeure on what it deemed secure ports and facilities, and restart procedures are underway at some locations following a blockade beginning in January that cut production. [nL5N2GH03C]
OPEC and its allies, known as OPEC+, made a record cut in supply of 9.7 million barrels per day from May 1 to support prices as the coronavirus crisis knocked demand. OPEC+ tapered the cut to 7.7 million bpd from Aug. 1.
(Reporting by Alex Lawler, editing by Kirsten Donovan)