Even after all the fanfare surrounding OPEC’s success in cutting output and nearly reaching goals set out for the entire cartel, a powerful force is reemerging as a potential deal breaker. The advent of higher prices has allowed producers in the United States to continue ramping output higher over the last few weeks with no end in sight for the gains. Now that US energy policy is likely to undergo a significant shift thanks to the approval of the Keystone XL pipeline and potential shifts in taxation, American production has significant room to rise over the medium-term on the back of more comfortable policy measures.

However, besides the gains in US production, another serious force to be reckoned with has resurfaced: Libya. Exempted from the OPEC deal, the country has made significant strides towards restoring production that has been volatile to say the least.  With fighting in the Eastern, oil-rich provinces still raging and presenting difficulties in completely bringing back to life the 1.600 million barrels per day produced under the Gaddafi regime, the country has nevertheless made significant progress in raising output. Considering the complete backdrop, the levelling out of oil prices may see the fragile equilibrium reached by OPEC swiftly destroyed.

Production Climbs as Stockpiles Gain

One of the telltale signs of the health of the energy economy is weekly data produced by the US Department of Energy. Figures released on Wednesday showed that US crude oil inventories rose for a third straight week, climbing by 2.840 million barrels. However, more important than the stockpile gains was an increase in production that is consistent with the rising rig count. Oil services giant Baker Hughes reported the largest addition in active drill rigs last week since 2013, with the count rising by 29. Production has been matching these gains, with output reaching 8.961 million barrels per day for the week ended January 20th.

Besides the supply side of the equation is the policy component that could support further upside, with Trump’s ambitious tax initiatives potentially incentivizing increased drilling and output over time. However, outside of rising US production is the fact that OPEC production may actually be set to surprisingly rise as well. Even though certain countries such as Venezuela and Iraq are still working towards reaching their quotas, the exemptions granted to Iran, Nigeria, and Libya could come back to haunt the cartel. Although Nigeria and Iran are not forecast to have as big an impact, Libya stands out as the country that could wreck the fragile price equilibrium.

Libyan output has surged from approximately 300,000 barrels per day in September to 715,000 barrels per day in January, marking a 3-year high for the country. Furthermore, the country plans to raise that figure to 1.250 million barrels per day by the end of 2017 according to the Chairman of the National Oil Corporation Mustafa Sanalla. As a result, any easing in the glut may be rapidly filled by resurgent production from both the US and Libya over the next 6-12 months. Therefore, further gains in oil prices are unlikely, with a ceiling probable to appear on the upside over the medium-to-long term.

What Binary Options Traders Should Watch For

The best place to look for information related to the trajectory of oil prices is by reviewing the supply and demand conditions. While demand is a little more difficult to measure, weekly figures from the US Energy Information Administration makes it easier to understand how production and inventories are changing. Aside from the US, it will be important to monitor OPEC’s monthly report and whether progress is being made towards accomplishing their output cut targets. However, should data show rising Libyan, Iranian, and Nigerian production, it could very negatively impact oil prices over the medium-term. With few catalysts for more upside in prices, any further gains in supply are likely to be a net negative for oil futures.