OPEC's Fragile Five Can Easily Become a Shaky Six

(Bloomberg) -- We may have to add Algeria to the growing list of OPEC countries whose oil production is suffering involuntary declines, expanding the so-called "Fragile Five" to a "Shaky Six" if protests in the North African country start to disrupt the flow of oil.

Five OPEC countries -- Angola, Iran, Libya, Nigeria and Venezuela -- are already experiencing unplanned production declines as a result of under-investment to offset natural declines, civil unrest, or sanctions. An escalation of tensions in Algeria that translate into widespread strikes, or violent unrest, could make it a sixth.

Protests began in opposition to President Abdelaziz Bouteflika seeking a fifth term in office in elections due to take place next month. But they only increased after he announced Monday that he would not to run, while simultaneously delaying the poll until a new constitution is drafted by the year’s-end. Demonstrations have taken place in many towns, including the ports of Arzew and Bejaia, which handle nearly 90 percent of the country’s crude and condensate exports, according to tanker tracking.

Click here for a sketch map of Algeria’s main oil infrastructure.

Algeria’s oil and gas fields are mostly situated deep inland, far from the major towns along the Mediterranean coast. This may protect the production facilities themselves from being affected by the protests. But limited oil storage capacity means that any disruption to flows through export terminals could quickly hit production. Demonstrations have not affected oil and gas production, state oil company Sonatrach’s CEO Abdelmoumen Ould Kaddour said in comments to the Elbilad news site.

OPEC's Fragile Five Can Easily Become a Shaky Six

Should the situation worsen, though, Algeria could suffer the types of disruption that have affected neighboring Libya, where the country’s biggest field is only now returning to full production after being shut since December.

Algeria became Africa’s third largest oil producer, behind Nigeria and Angola, after the collapse in Libyan output that followed the overthrow of Moammar Al Qaddafi in 2011. But it may soon slip back to fourth as Libya’s output recovers and its own is put at risk.

OPEC's Fragile Five Can Easily Become a Shaky Six

The country is an important source of light, sweet crude and condensate for refiners in Europe, with the U.K. and France the top two destinations in 2018, tanker tracking data show. The loss of Algerian shipments might be more easily replaced with light, sweet U.S. cargoes than the heavier grades lost from Venezuela and Iran, but the replacement barrels will have to travel up to ten times as far.

The Fragile Five have not yet become a Shaky Six, but Algeria’s leaders are treading a narrow path to avoid the country falling into this group.

*Note: Julian Lee is an oil strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.

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