OPEC’s spare crude oil production capacity
The U.S. Energy Information Administration estimated that OPEC’s spare crude oil production capacity fell by 36,277 bpd (barrels per day) to 2.32 MMbpd (million barrels per day) in April 2017—compared to March 2017.
OPEC’s spare crude oil production capacity fell 1.5% in April 2017—compared to March 2017. It rose 60% from the same period in 2016. Its production capacity hit 2.35 MMbpd in March 2017—the highest level since April 2013.
Crude oil prices
Brent and US crude oil (FENY) (XLE) (VDE) (UCO) 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 (ERY) (PXI) (BNO) prices rise. When OPEC’s spare crude oil production capacity is high, it indicates ample headroom to manage demand and prices.
OPEC’s spare production capacity averaged 1.26 MMbpd in 2016. It’s expected to average 1.82 MMbpd and 1.20 MMbpd in 2017 and 2018, respectively. Estimates of rising production capacity in 2017 suggest that OPEC’s crude oil output could fall during the same period. Extending the production cut deal until March 2018 suggests that OPEC’s production would decline in 2017 and early 2018.
Impact on crude oil producers
Expectations of a fall in OPEC’s crude oil production in 2017 would support crude oil prices. Higher crude oil prices have a positive impact on major Middle East and US oil producers like Saudi Aramco, Hess (HES), Northern Oil & Gas (NOG), and Triangle Petroleum (TPLM).
Next, we’ll analyze how global crude oil supply outages impact crude oil prices.