But the seemingly ungovernable country has already undermined OPECs efforts to cut production, and now Libyan oil executives are projecting that their production will reach a million barrels a day by the end of July, a level not seen in four years.
Its an incredible disconnect between the security situation and the oil story, said Helima Croft, head of commodity strategy at RBC Capital Markets. I just find it amazing, but I dont know how long you can reconcile these divergent stories.
Libya has Africas largest oil reserves, and its high-quality light crude is in demand around the world. During the 2011 revolution against Col. Muammar el-Qaddafi, and most of the years that followed, production was reduced to a trickle while exports were blocked by militias that controlled the ports.
But by the end of 2016, the blockades were lifted by one armed group, the Libyan National Army, and threats to the oil fields by local adherents of the Islamic State were alleviated by a successful push of opposing militias. Those were positive developments for Libya, but they came just as OPEC decided to take a new course of production cuts to lift crude prices.
Over the last two and a half years, the oil industry experienced its deepest downturn since at least the 1990s.
Libya, along with Iran and Nigeria, was excluded from the OPEC agreement to slash production last year by more than a million barrels a day. Now all three have increased production, but Libya has been by far the biggest surprise.
A lot of experts figured things were so unstable in Libya and politics were so opaque that they did not want to factor in more supply from there, said Michael Lynch, president of Strategic Energy and Economic Research. With the Libyan surprise, he added, OPEC has been wounded. It gets back to the problem that OPEC has a lot of members in bad shape, making it difficult for them to call on everybody to make sacrifices equally. So they excluded those three and now its come back to bite them.
Oil prices have plummeted by 16 percent since late May, when OPEC announced an extension of its cutback agreement to next year. Global inventories of oil and refined products have remained stubbornly high, even during the summer driving season. Still, Saudi and other OPEC officials have expressed confidence that inventories and demand will come into balance in the fourth quarter of the year despite the increased oil production in the United States, Libya and a few other countries.
Libya continues to complicate that outlook.
The German oil company Wintershall reached an interim agreement to settle a dispute with the National Oil Corporation of Libya last week to resume production in two fields that potentially could combine to increase output by 160,000 barrels a day. Already, the countrys daily production has jumped by 50,000 barrels.
Last month the national oil company announced an aggressive three-phase development plan to lift Libyan output to 1.32 million barrels a day by the end of 2017, to 1.5 million barrels a day by the end of 2018, and to 2.2 million barrels a day by 2023. That kind of growth will require the expertise of Western oil companies that have mostly shied away from investing in Libya in recent years because of the instability and dangers to their workers. Few oil executives outside of Libya are optimistic that the goals will be reached.
Many oil experts say that the Libyan oil company and its partners have been lucky over the last year and that their luck may soon run out, in part because of the rising tensions between Qatar and its Persian Gulf neighbors along with Egypt. The Qataris are aligned with powerful members of the Tripoli-based government backed by Western nations and Turkey, while the competing government based in the eastern city of Tobruk is backed by the United Arab Emirates, Saudi Arabia, Egypt and Russia.
The two governments reached an uneasy deal in late 2015, and the national oil company tries to remain neutral, but the effort led by the United Arab Emirates and Saudi Arabia to isolate Qatar is already spilling over into Libya.
Potentially caught in the crossfire is Glencore, the Swiss-based commodities trading giant, which is the marketer of a large percentage of Libyan oil production and is partly owned by the Qatari Investment Authority. The head of the eastern branch of the Libyan national oil company has accused Qatar of using its 8.5 percent stake in Glencore to divert the trading companys sales of Libyan oil to finance terrorists, a charge denied by Mustafa Sanalla, the chairman of the national oil company based in Tripoli.
Mr. Sanalla has official authority over all exports, but the prime minister of the eastern government, Abdullah al-Thinni, has ordered Glencore to halt oil exports from the port of Hariga. About 200,000 barrels a day of exports could eventually be put at risk.
I appreciate the deals that Sanalla has done to re-establish production, said Geoff D. Porter, president of North Africa Risk Consulting. But those deals dont reflect any structural change in the oil sector or the geopolitical risks or labor unrest, safety issues and tribal unrest. These are huge issues that could slow up the sector at any point.
A version of this article appears in print on June 21, 2017, on Page B3 of the New York edition with the headline: As OPEC Works to Shrink Crude Supplies, Libya Is Flooding the Markets With Oil.
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Libya's Increased Oil Production Thwarts OPEC's Reduction Plans - New York Times