Ahead of OPEC's meeting this week, the group faces a new conundrum. At their last meeting in December 2013, market concern for 2014 was OPEC's ability to rein its output in to a paltry 29 mb/d. With the potential for lost Libyan and Iranian output to return, the onus would fall entirely on Saudi Arabia to reduce. Today, the challenge for OPEC has become whether it can meet the call on its crude given the rising number of problems in its member countries.
Indeed, the geopolitical backdrop in many countries has deteriorated through 2014 but an important shift has now taken place in Libya in particular. Before it was a government, albeit a weak and divided one, confronting an array of protests and challenges. Increasingly it is now two well-armed and hostile factions confronting one another, which is bringing Libya closer to civil war than at any time since the overthrow of Gaddafi in our view.
The other big if, the return of Iranian output in H2 14, also seems less likely after the latest round of talks between the West and Iran. While we expect the interim deal to be extended and some further concessions, a full lifting of the sanction on oil exports is unlikely.
But that is only one part of the story. The call on OPEC crude for 2014 has also been raised due to better demand and disappointing non-OPEC supplies. The IEA has revised its call higher by nearly 1 mb/d since October 2013, bringing it closer to our long-held estimate of 30.1 mb/d.
The call on OPEC crude in Q3 14 is nearly 31 mb/d, a Herculean task for the group given that production has been below 30 mb/d for the last five months. For now, and against all expectations at the start of the year, the OPEC meeting in June will be another uneventful one.