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OPECs Spare Capacity Could Be Put To The Test

OPEC’s spare capacity may be put to the test as oil prices jumped on Tuesday after tensions in the Middle East rose on multiple reports of unrest, including four damaged oil tankers at the hands of unknown saboteurs and an attack on an oil pipeline in Saudi Arabia.

As prices rise and geopolitical threats escalate, OPEC’s production continues to decline, leaving the market to wonder weather OPEC will be able to react to such market turmoil.

At 1:25pm EST, WTI had risen $0.87 (+1.43%) to trade at $61.91. Brent crude was trading at $71.39, up $1.16 (+1.65%).

The rise in prices falls in line—today at least—with most analyst’s sentiment, including that of Rystad Energy, that these supply disruptions, along with an already tight oil market, could send prices “violently upward”.  This perceived tight oil market comes as Iran and Venezuela are producing significantly less crude oil today than they were a year ago.

According to the latest data available from OPEC’s Monthly Oil Market Report, total OEPC production in April 2019 came in at 30.031 million bpd. One year prior, OPEC’s April output totaled 31.929 million bpd. April 2017 came in at 31.731.

The production drop among OPEC members is largely supported by drops in Venezuela’s and Iran’s production. Venezuela’s production fell from 1.436 million bpd in April 2018 versus just 768,000 bpd in April 2019. Iran produced 3.823 million bpd in April 2018, falling to 2.554 million bpd in April 2019.

And while it is generally understood that Saudi Arabia is doing more than its fair share of the production cuts, and that it has plenty of self-professed spare capacity should it want to turn back on the taps, the Kingdom’s production has been more stable than Iran and Venezuela, producing 9.959 million bpd in April 2018, falling to 9.742 in April 2019. The net result year to year is a decline of almost 1.9 million bpd—most of which cannot be turned “back on” as Venezuela and Iran have slim hopes of returning to their former glories.

Source: OPEC MOMR; tb/d

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