The EIA (U.S. Energy Information Administration) estimates that OPEC’s (Organization of the Petroleum Exporting Countries) spare crude oil production capacity rose by 960,000 bpd (barrels per day) to 2.01 MMbpd (million barrels per day) in January 2017—compared to the previous month. OPEC’s spare crude oil production capacity rose 91% month-over-month and 33% year-over-year. It’s at the highest level in two years.
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OPEC’s spare production capacity hit 4.5 MMbpd in January 2010—the highest in the last ten years. Brent crude oil prices were trading at $76.2 per barrel in January 2010.
OPEC’s spare production capacity hit 908,114 bpd in July 2008—the lowest level in the last ten years. Brent crude oil prices were trading at $132.7 per barrel in July 2008.
Brent and WTI crude oil (VDE) (FXN) (XOP) (USO) prices rose from 2005 to 2008 when OPEC’s spare crude oil production capacity levels were low. Lower spare capacity restricts OPEC’s ability to respond to a rise in demand. As a result, crude oil (PXI) (UCO) (ERX) prices rise. When OPEC’s spare crude oil production capacity is high, it indicates ample headroom to manage demand and prices.
OPEC’s production capacity averaged 1.26 MMbpd in 2016. It’s expected to average 1.69 MMbpd and 1.21 MMbpd in 2017 and 2018, respectively. The consensus of falling production capacity in 2018 suggests a rise in OPEC’s crude oil production over the long term.
For updates on OPEC’s production and major oil producers’ meeting, read Will OPEC Extend Its Crude Oil Production Cut Plan? and OPEC’s Crude Oil Production: How It Could Impact the Surplus.
Expectations of a rise in crude oil production from OPEC over the long term will have a negative impact on crude oil prices. Lower crude oil prices have a negative impact on major Middle East oil producers such as Saudi Aramco and National Iranian Oil Company. They also impact US oil and gas exploration and production companies such as ConocoPhillips (COP), Bonanza Creek Energy (BCEI), Hess (HES), and PDC Energy (PDCE).
Read What Can Investors Expect in the Crude Oil Market in 2017 and Are Crude Oil Prices on the Verge of Collateral Damage? for more on crude oil prices.
For more industry analysis, visit Market Realist’s Energy and Power page.