The oil price has fallen for the second consecutive month in August, increasing the uncertainty of OPEC+'s gradual voluntary production cuts starting from October 1.

However, as a member of OPEC, the interruption of production and exports in Libya may actually make it easier for OPEC+'s production policy decisions.

David Oxley, chief climate and commodity economist at Capital Economics, said in a report last Friday, "At this stage, OPEC+ is likely to stick to the original plan - gradually increasing production from October, which is a key reason why we predict oil prices will fall to $70 a barrel by the end of 2025."

In June of this year, OPEC+ announced that it would gradually restore the voluntary production cut of 2.2 million barrels per day from the fourth quarter to the end of 2025, with Saudi Arabia reducing production by as much as 1 million barrels per day. At that time, the alliance also stated that the plan could be stopped or reversed based on market developments.

The latest market dynamics involving Libya actually strengthen the view that a gradual increase in production is necessary to ensure market supply and demand balance.

Oxley said that on the surface, the unexpected loss of oil production in Libya last week may strengthen OPEC+'s determination.

It has been reported that on Monday, the eastern government of Libya, supported by the Libyan National Army warlord Khalifa Haftar, announced that it would shut down all oil fields under its control and suspend oil production and exports until further notice.

According to OPEC+'s data, in 2023, Libya's oil production was 1.189 million barrels per day, with exports of 1.024 million barrels per day. So far, news reports have mentioned that production losses are close to 0.7 million barrels per day.

Oxley said, history has shown that Libya's oil production has rebounded quickly after multiple interruptions in the past. He said, "It is worth noting that oil prices did not soar due to recent disruptions in oil supply from Libya, but continued to trade within the range of around $80 per barrel that we predicted over the past month or so."

Oxley stated, "Apart from the ever-changing geopolitical risks, more and more signs indicate that oil demand is weaker than expected, especially in Asia. This may give OPEC+ reasons to pause before increasing supply."

In this context, he said, "OPEC+ is unlikely to be in a hurry to commit to action, which may keep us guessing for some time."

Meanwhile, OPEC still plans to limit the excess production of some member countries in the first seven months of 2024.

The organization stated that it has received "compensation plans" from Iraq and Kazakhstan to offset the oil production that exceeded the agreed quotas from January to July.

Citing assessments from independent sources, OPEC said that Iraq and Kazakhstan's surplus production is 1.44 million barrels per day and 69.9 thousand barrels per day, respectively. OPEC stated that "by September 2025, all surplus production will be offset."

The OPEC Joint Ministerial Monitoring Committee, which is responsible for reviewing the development of the oil market, will hold its next meeting on October 2nd, while OPEC's next ministerial meeting will be held on December 1st.

Editor/Rocky