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Will the US Crude Oil Bull Market Be Short-Lived?

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Part 6
Will the US Crude Oil Bull Market Be Short-Lived? PART 6 OF 6

How OPEC’s Spare Crude Oil Production Capacity Is Recovering

OPEC’s spare crude oil production capacity 

The EIA (US Energy Information Administration) estimates that OPEC’s (Organization of the Petroleum Exporting Countries) spare crude oil production capacity rose 35,000 bpd (barrels per day) to 2 MMbpd (million barrels per day) in August 2017, compared with the production capacity in the previous month.

OPEC’s spare crude oil production capacity rose 1.7% month-over-month and 1.047 MMbpd, or 110% YoY (year-over-year), hitting a seven-month low of 1.96 MMbpd in July 2017. OPEC’s crude oil production hit a 2017 high in July 2017.

How OPEC&#8217;s Spare Crude Oil Production Capacity Is Recovering

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Crude oil prices

Brent (BNO) and US crude oil (SCO) (DBO) 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 prices often rise.

Higher crude oil prices have a positive impact on oil producers (IEZ) (VDE) like Saudi Aramco, Apache (APA), Noble Energy (NBL), W&T Offshore (WTI), and Carrizo Oil & Gas (CRZO). When OPEC’s spare crude oil production capacity is high, it indicates ample ability to manage demand and prices, and prices can become steady or weak.

OPEC’s spare production capacity estimates

The EIA estimates that OPEC’s spare production capacity could average 2.1 MMbpd in 2017. The major oil producers’ production cut deal contributed to the higher spare production capacity.

OPEC’s spare production capacity is expected to average 1.42 MMbpd in 2018, compared with 1.14 MMbpd in 2016.

Impact on crude oil producers

The lower OPEC spare production capacity in 2018 suggests that OPEC’s crude oil production could rise in 2018. However, the possibility of an extension of its production cut deal beyond March 2018 could slow down OPEC production, while a fall in OPEC’s crude oil production and improving demand could benefit crude oil prices.

For more crude oil price forecasts, check out Market Realist’s “Will Brent and US Crude Oil Prices Rise in 2018?” You might also be interested in the series Crude Oil Futures: Is It Time for a Correction? and Will OPEC Meeting Overshadow Excess US Crude Oil Supply?

For updates on natural gas, see Market Realist’s series Why OPEC’s Meeting Is Important for Natural Gas Prices.

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