OPEC Production Sinks Before Meeting as Conflict Roils Libya

(Bloomberg) -- OPEC's output plunged again last month as the group's voluntary cutbacks were amplified by a conflict that halted exports from Libya.

Production declined by 480,000 barrels a day to 27.91 million a day in February, according to a Bloomberg survey. That's the lowest since 2009, when the group had just slashed supplies during the global financial crisis, yet OPEC finds itself under pressure to reduce output even further in response to the coronavirus.

The outbreak that started in China and is spreading around the world could be the biggest commodity-demand shock since the great recession of 2008 to 2009, according to Goldman Sachs Group Inc. The coronavirus is battering world fuel consumption as industries shut down, entire cities are quarantined and air travel slumps, sending crude prices plunging.

Poor Implementation

The Organization of Petroleum Exporting Countries and its partners were already struggling to manage the price impact from the U.S. shale boom. They launched a new round of supply curbs at the start of this year, and the survey showed a mixed rate of implementation among the cartel's members.

The poll is based on information from officials, ship-tracking data and estimates from consultants including Rystad Energy AS, JBC Energy GmbH and Rapidan Energy Group. The comparison between output in February and historical data is affected by membership changes, with Ecuador, Qatar and Indonesia having left the group while Congo, Gabon and Equatorial Guinea joined.

Though Saudi Arabia -- OPEC's biggest member -- delivered its pledges in full, Iraq and Nigeria, which have repeatedly demonstrated poor implementation, actually increased their production.

Those increases however were eclipsed by a plunge in Libya, where a rebel military commander has blockaded oil ports while haggling over a peace settlement with the national government. Libya's output tumbled by 640,000 barrels a day, or about 80%, to just 150,000 barrels a day. The country has long been exempt from making cuts as part of the OPEC+ deal because of its internal struggles.

The North African producer has lost almost 1 million barrels a day since the start of the year because of the conflict -- roughly equivalent to all of the voluntary curbs that OPEC and its allies promised as part of their latest intervention. Libya's misfortune is sparing other OPEC members from an even deeper rout in crude prices.

Deeper Cuts

OPEC is expected to cut deeper at this week's meeting. All but two of 29 analysts, traders and brokers surveyed by Bloomberg predict that the OPEC+ coalition will announce substantial additional reductions when it meets on March 5 to 6, with an average estimate of 750,000 barrels a day. The alliance spans all 13 OPEC nations, plus 10 non-members such as Russia, and accounts for about half the world's oil supplies.

Saudi Arabia has been pressing OPEC+ to act for several weeks. Though there has been reluctance from Russia -- their most important partner -- there are signs that Moscow now recognizes the need for some kind of response.

The situation in global markets is certainly serious, with prices near their lowest in more than two years and a growing contingent of trading desks anticipating that demand growth could be wiped out for the first time in more than a decade.

--With assistance from Julian Lee, Salma El Wardany, Prejula Prem, John Deane and Brian Wingfield.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: James Herron at jherron9@bloomberg.net

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