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Welcome to the worried edition of Oil Markets Daily!

Our inbox was filled with requests to update our thoughts on potentially higher than expected production coming out of US, Libya and Nigeria. The questions started flying when Libya's National Oil Company (NOC) announced that Libya's production is above 800k b/d and could reach 1.1 - 1.2 million b/d sometime this year. In addition, Nigeria's Forcados is returning and exports are expected to increase.

Let's address US shale first

In the latest EIA crude storage report, Lower 48 production rose again bringing overall US oil production to 9.314 million b/d.

The question on everyone's mind is just how fast can US shale grow this year?

Our current estimate pegs US crude production to average 9.45 million b/d this year. Second half of the year should see US shale production increasing to exit rate of about 9.7 to 9.8 million b/d. The pace of the increase is about 12k b/d per week.

The issue is that the current bottleneck we are seeing in the Permian (primary shale basin growth) will escalate towards the year end as storage capacity and takeaway capacity become strained. Even if US shale producers have access to capital and the ability to grow production aggressively, infrastructure support won't allow it to happen. In addition, there isn't enough frac crews to help service the Permian resulting in servicing cost pressure and other negative headwinds for producers in the region.

So how fast can US shale grow this year? We should see exit around 9.7 to 9.8 million b/d, and that's assuming infrastructure constraint. Any labor shortage along the way will see this figure reduced.

Libya

Is Libya really producing over 800k b/d?

Not likely, but 50k b/d here and there won't make that much of a difference in the global supply outlook. The question we should all be asking is if Libya can really increase production by an additional 400k b/d.

Libya's NOC currently attributes the shortfall in production to disputes with Wintershall, BASF's oil and gas arm.

Our analysis of Libya's situation is a bit more complicated than that. We think NOC is taking the stance that it somehow has access to capital to bring the production back online. Currently, Libya lacks adequate capex and expertise to bring back aging fields that have been neglected for the last 5 years. The issue with bringing old field production is the loss of pressure in the reserve, so servicing firms are required. If conflicts continue, it's unlikely Libya will receive the adequate technical expertise to progress with revitalizing its aging fields. The gist of the story is that NOC is likely talking out of the other end rather than the logical end.

Libya conflicts are also far from over, so these comments are likely just ego boosters rather than something useful for forecasting purposes.

Nigeria

Recent developments in Nigeria point to recovering oil production. The government's talks with militants and Delta leaders have contributed to peace in the region this year. Our forecast is for Nigeria's oil production to increase gradually from 1.6 million b/d to 1.8 to 1.9 million b/d.

Conclusion

Most estimates we've seen have already baked in the assumptions we are using, and the result continues to point to an oil market that's going to be severely undersupplied for the 2 nd half of 2017. The expected demand growth increase will further widen the supply and demand deficit, and carry well into 2018. Nothing has changed on the bull thesis.

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With U.S. Shale, Libya, And Nigeria Ramping Productions, Should ... - Seeking Alpha

Volunteers say they are lucky to be alive after the Libyan coastguard cut across their ship to prevent them rescuing refugees in the Mediterranean amid record deaths at sea.

A vessel operated by German charity Sea-Watch was about to distribute life jackets to hundreds of migrants on an overloaded wooden fishing boat in international waters when the heavily armed ship approached.

Owen Thurgate, who was in a speedboat with an interpreter talking to those on board, said he received a radio alarm call saying a warship was coming in fast.

When we looked over our shoulders a boat had just come around the bow of Sea-Watch and was heading towards us at high speed, he added.

The charity filmed the moment the military vessel, carrying a long-range gun, passed within feet of the ships bow.

Ruben Lampart, captain of the Sea-Watch II, said he had no idea why the Libyans made the very, very dangerous manoeuvre after failing to respond to radio contact.

A Libyan coastguard boat observing a rescue by MSF's Bourbon Argos ship in a separate incident on 4 November 2016 (Lizzie Dearden)

I couldnt avoid it, he said. They put their ship, my ship, the refugees, everybody in huge danger.

We are all just happy that we are still alivewhat happened is absolutely unacceptable.

The Libyan coastguard was filmed forcing migrants from the fishing vessel on to their ship without life jackets another decision aid workers claimed put lives at risk.

Sea-Watch received instruction from the Maritime Rescue Coordination Centre in Rome, which deployed it on the original rescue operation, saying that the Libyan coastguard was taking over on-scene command.

Ayoub Qassem, a spokesperson for the coastguard, said the incident occurred about 19 miles north of Libya's coast on Wednesday morning outside the countrys territorial waters.

An international rescue organisation called Sea-Watch tried to hinder the work of our coastguard in a bid to take the migrants, claiming Libya is not safe for migrants, he said, adding that fire had been exchanged with people smugglers, without providing details.

Libyan officials said around 350 people on board the wooden boat were taken to a detention centre in Tripoli, although migrants told aid workers there were more than 500 people crammed on the deck and in the hold. At least five women needed immediate medical treatment.

The vessel had left the smuggling hub of Sabratha on Tuesday night, carrying asylum seekers from Morocco as well as other African nations and the Middle East.

Damage from bullets fired by the Libyan coastguard below the bridge on MSF ship the Bourbon Argos (Lizzie Dearden )

One 24-year-old Moroccan man said he had come to Libya five weeks earlier in order to try to reach Europe, while a 28-year-old Moroccan had been working in the war-torn nation for four years but was forced to flee the deteriorating situation.

A Syrian woman had travelled through six countries to reach Libya, paying $1,000 (780) in each and leaving two sons aged 12 and 13 behind in Jordan.

The Libyan coastguard, which has received offshore training from European nations including the UK, has previously been accused of shooting, beating and abusing migrants.

Officers opened fire on one aid agencys ship last year, leaving its hospital riddled with bullet holes, while a previous attempt to block a Sea-Watch rescue in October resulted in the death of up to 25 refugees, who drowned after a coastguard officer started beating migrants on a rubber dinghy.

Libyan authorities frequently forcibly return refugee boats to land from both territorial and international waters a move humanitarian agencies say violate international laws against refoulement.

The fragile Libyan Government of National Accord (GNA) has so far been unable to stem the ongoing civil war, seeing warring groups including two rival governments, tribes and Isis fight for territory.

Widespread lawlessness has allowed people smugglers to expand their lucrative trade, linking up with gangs who detain and extort migrants, ransoming them or forcing them into labour at slave markets and prostitution.

At least 20,000 migrants are believed to be held in irregular detention centres in the country, where survivors report torture, rape and starvation in dire conditions sparking a probe by the International Criminal Court.

Moves by the EU to support detention centres as part of a package of support to bolster Libyan efforts against people smuggling and stem boat crossings in the Mediterranean Sea have been heavily criticised.

Italy signed a deal with the fragile Libyan Government of National Accord (GNA) in Tripoli in February that also promised training and money to fight human traffickers - an agreement initially endorsed by EU states at a summit in Malta.

The EU is also considering a request for equipment including ships armed with machine guns for the Libyan coastguard, which is attempting to increase its operations.

More than 1,300 migrants have died on the treacherous route so far this year, with 45,000 rescued and taken to Italy, while 5,600 have crossed the Aegean Sea between Turkey and Greece.

That route has slowed to a trickle since the controversial EU-Turkey deal came into force last March, seeing all asylum seekers arriving on Greek islands detained under threat of deportation.

But the prospect of implementing a similar agreement with Libya looks slim given the governments reduced capacity and human rights concerns raised by the UN.

Filippo Grandi, the UN High Commissioner for Refugees, said record deaths in the Mediterranean Sea and mass arrivals showed rescue operations were as crucial as ever.

Since the beginning of 2017, one person out of 35 has died on the sea journey from Libya to Italythis cannot continue, he said, calling for increased rescue efforts as well as work to address the root causes of migration.

This is a matter of life or death which appeals to our most basic sense of humanity and should not be called into question.

Update:

Jalal Othman, communications director for the GNA, told The Independent: The Libyan Coast Guard is doing brave, difficult and dangerous work to save lives and protect the national coastline.

"We are aware of this accusation from Sea-Watch and have reviewed the video.

"We will continue to fulfill our mission to keep the coast safe and secure, providing vital rescue missions in cooperation with our partners.

Here is the original post:
Aid workers 'lucky to be alive' after Libyan coastguard intercepts refugee boat rescue in Mediterranean - The Independent

Saudi Arabias energy minister Khalid al-Falih tried to put the markets at ease by all but confirming that OPEC would extend its production cuts through the end of the year. He tried to talk up oil prices even further by hinting that the group might even agree to a 9-month extension.

With the OPEC cuts seemingly assured for little while longer, surely the global surplus is poised to shrink in the relatively near future, pushing up prices? Perhaps. But higher production from within OPECcould once again lead to disappointment.

Libyas National Oil Corporation just announcedthat it ramped up production to a two-year high of 796,000 barrels per day (bpd). That should definitely be a cause for concern for the oil bulls out there. For much of the first quarter fighting in Libya knocked production offline, briefly taking output below 500,000 bpd. The outages were one of the rare bits of bullish news amid a sea of oversupply. But just as Libya appeared to present risks to global supplies, it has once again restored output and then some. Just shy of 800,000 bpd, production is the highest it has been since October 2014.

Even better for Libya (but worse for oil prices), Libya is aiming to ramp up production to 1.2 mb/d by the end of the summer. That seems like a long shot, and maybe it is. But if we have learned anything from Libya this year it is that anything can happen. Multiple times over the past few months the National Oil Company has added 100,000 or 200,000 bpd almost overnight. As recently as the end of April, the NOC said Libya was producing 700,000 bpd; a few days later it is producing just about 800,000 bpd. So, one cannot rule out the possibility that the NOC achieves its goal. If that comes to pass, Libya would add another 400,000 bpd over the course of the next few months.

One thing working in Libyas favor is that the political process is progressing. Libya has been torn apart by political jockeying between rival factions as much as it has been by militant fighters, so the fact that the governments of east and west agreedto form united institutions and a national army in early May bodes well for some degree of reconciliation.

Another country that could spoil the efficacy of the OPEC extension is Nigeria. Reuters reported on Tuesday that Royal Dutch Shell is conducting tests on its Trans Forcados oil export pipeline, which has been offline for the better part of a year. In early 2016, the Niger Delta Avengers successfully pulled off a seemingly endlessstring of attacks on Nigerias oil infrastructure, knocking more than a half million barrels per day offline. Forcados was one of the most critical targets, a pipeline that is responsible for 200,000 to 240,000 bpd of exports when operational. Reuters said that exports could restart as early as this weekend.

Libya and Nigeria are exempt from the OPEC cuts, so they are not bound by any international agreements to keep a lid on production. In fact, both countries are in desperate need of higher output. There is no guarantee that they can succeed in bringing production back online, but at the upper end, they could potentially combine for some 800,000 bpd of additional supplies this year. That would more than offset Saudi Arabias cuts under the OPEC deal, and in fact, it would account for just about two-thirds of the groups entire reductions. Again, this is far from inevitable, but entirely possible.

Iraq poses a third risk from within OPEC, although to a lesser degree. Iraq is subject to the production limits, even if some Iraqi officials insist they should have also received an exemption. Iraq signed on to cuts of 210,000 bpd last November, and compliance has been decent but spotty. Through the first three months of the year, Iraq has made some cuts but has still not brought production down to its promised target. It still has time to comply, but because the deal is a six-month average, it would need to bring output well below its target in order to bring the average sufficiently down.

More worrying from OPECs perspective is the fact that a few commentsfrom some powerful Iraqi officials have hinted at more production gains ahead. Iraqs oil minister said earlier this year that his country could ramp production up to 5 mb/d this year. He could have been talking about capacity, rather than what will actually be produced, but that would be well in excess of Iraqs promised limit of 4.35 mb/d. Related:Gas Looting In Mexico Turns Deadly

All signs still point to an agreement on an extension of the cuts in Vienna in a few weeks time. But Iraq could undermine the resolve of the group if it pushes for an exemption. Or, more likely, it will agree to extend the cuts, but will continue to comply at a less-than-100-percent rate. Ultimately, that could spur weaker compliance from other members, especially if oil prices fail to rally.

Libya and Nigeria are altogether different. They could add large new sources of supply regardless of what OPEC agrees to.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:

Read the original:
Libya, Nigeria, And Iraq A Triple Threat To The OPEC Deal - OilPrice.com

Bloomberg

Dispute in Libya Affects Wintershall Oil Production Wall Street Journal (subscription) A dispute between two arms of the Libyan state has ensnared German oil company Wintershall AG, dragging down Libya's crude production and creating a new obstacle in the country's attempt to revive its oil industry after years of fighting. After nearly ... Libya says its oil production tops 800000 barrels per dayFox News Libya Pumping Most Oil Since 2014 Even as Dispute Slows RecoveryBloomberg Libya's oil production rise overshadowed by Wintershall disputeFinancial Times Reuters -The American Interest all 22 news articles »

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Dispute in Libya Affects Wintershall Oil Production - Wall Street Journal (subscription)

* Little clarity on how U.N.-mediated deal can be reset

* Angry reaction in Tripoli to idea of Haftar as army leader

* Diplomatic push seen as lopsided and uncoordinated

By Aidan Lewis

TUNIS, May 10 Libyan military commander Khalifa Haftar, a figurehead in the east of the country, and Fayez Seraj, the head of a U.N.-backed government in Tripoli, appeared at ease as they broke more than a year of deadlock between them at talks in Abu Dhabi last week.

The meeting may have been amicable but it is unclear if either man will sway a complex array of factions on both sides of Libya's divide towards compromise.

Also unclear is whether foreign states with divergent strategies in Libya will help them do so -- especially as U.S. President Donald Trump has yet to spell out a policy on Libya.

At stake are the prospects for stabilising and unifying Libya, which splintered into competing fiefdoms after the NATO-backed uprising that toppled Muammar Gaddafi in 2011.

Western powers had hoped Seraj's Government of National Accord (GNA) would play that role. But though oil production has risen and Islamic State was defeated in its stronghold of Sirte under its watch, the GNA has been unable to extend its authority or resolve acute security and economic crises since arriving in Tripoli in March last year.

Haftar, meanwhile, built his power base in the east, spurning the GNA as his self-styled Libyan National Army (LNA) took control of most of Benghazi and oil facilities to the southwest.

As the international community pressed to reset the U.N.-mediated deal that created the GNA, Haftar shunned dialogue, refusing at the last minute to meet Seraj in Cairo in February.

"The fact that they met this time was important," said a senior Western diplomat. "Haftar has moved...he is now sounding more amenable to compromise."

STRONGMAN IMAGE

Last month there was also a meeting in Rome between the heads of two parliaments based in Tripoli and the east, one aligned with the GNA and the other with Haftar. Both are naming delegations to negotiate the details of a deal.

But there are few obvious signs of convergence. A statement from the Haftar camp in Abu Dhabi stressed support for the military, battling terrorism, and "addressing the proliferation of armed formations" mirroring the image Haftar projects as a strongman who can crush extremism and curb militias.

Seraj's statement reflected conditions that could contain Haftar -- placing the military under civilian authority, building a democratic state, and preserving "the principles of the 17 February (2011) revolution".

Haftar is said to want a three-member ruling council that includes himself and Aguila Saleh, head of the eastern parliament, alongside Seraj.

But that would leave out key constituencies represented in Seraj's current leadership council, including southern Libya and the city of Misrata, whose powerful military brigades have been broadly aligned with the GNA and against Haftar.

Some more radical Misrata militias that still back an ousted, Islamist-leaning government, and have recently lost ground in Tripoli, are vehemently anti-Haftar.

But even more moderate armed factions aligned with the GNA in the capital reacted with unease after the Abu Dhabi meeting they saw as unfairly bolstering Haftar's strongman position.

"We have said numerous times no to military rule and Tripoli is a red line, whether for Haftar or anyone else," Hashem Bisher, a prominent commander, wrote on his Facebook page.

The reaction became wider and angrier when Seraj's Foreign Minister Mohamed Siyala made comments on Monday that suggested acceptance of Haftar as the head of a national army.

One brigade said it had shut the foreign ministry, where pictures of Haftar were posted captioned: "No to the war criminal Khalifa Haftar".

The Benghazi Defence Brigades (BDB), which includes fighters who have been battling LNA forces as they push west and south, condemned Siyala's comments and questioned the GNA holding "suspicious conferences and meetings".

Seraj did not travel to Egypt for a follow-up meeting with Haftar originally expected on Thursday.

DISJOINTED DIPLOMACY

Western diplomats say foreign mediation has to be synchronised for a political deal to be reached.

The Abu Dhabi meeting was brokered by Haftar's two most prominent foreign backers, the United Arab Emirates and Egypt. Both share the Haftar camp's distaste for the Muslim Brotherhood and back his military campaign against Islamist militants.

Algeria, which hosted a round of talks this week, and Tunisia, are pushing a more inclusive approach. But diplomacy has been disjointed, in part because of uncertainty over U.S. policy under the Trump administration and a delayed leadership change at the United Nations' Libya mission.

That has left a vacuum that medium-sized players with different approaches have been battling to fill, said Jalel Harchaoui, a geopolitics researcher at Paris 8 University specialising on Libya.

"If the U.S. takes a keen interest in Libya again, they would be the only player that could unify these efforts," he said. (Additional reporting by Ahmed Elumami; Editing by Patrick Markey)

* Phaserx reports first quarter 2017 financial results and provides corporate update

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Way forward for Libya uncertain despite "breakthrough" meeting - Reuters