OPEC’s spare crude oil production capacity
The US Energy Information Administration estimated that OPEC’s spare crude oil production capacity fell by 170,000 bpd (barrels per day) to 2.01 MMbpd (million barrels per day) in June 2017 compared to May 2017, the lowest level since January 2017.
OPEC’s spare crude oil production capacity fell 8% month-over-month but rose 91% year-over-year. Its production capacity hit 2.3 MMbpd in April 2017, the highest level since May 2013.
Highs and lows
OPEC’s spare production capacity hit 4.5 MMbpd in January 2010, the highest level in the last ten years. Brent crude oil prices traded 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 traded at $132.7 per barrel in July 2008.
Crude oil prices
Brent and WTI crude oil (XLE) (DIG) (FXN) (FENY) 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. Consequently, crude oil prices rise. When OPEC’s spare crude oil production capacity is high, it indicates ample ability to manage demand and prices.
OPEC spare production capacity estimates
The EIA estimates that OPEC’s spare production capacity averaged 1.14 MMbpd in 2016. It’s expected to average 2.1 MMbpd in 2017, which is 0.1% lower than the previous estimates. OPEC’s spare production capacity is expected to average 1.4 MMbpd in 2018, the same as the previous estimates.
Impact on crude oil producers
High production capacity in 2017 suggests that OPEC’s production could fall in 2017 due to the production cut deal. An expected fall in OPEC’s crude oil production in 2017 could support crude oil prices. Higher crude oil prices have a positive impact on the major Middle East and US oil producers like Saudi Aramco, ConocoPhillips (COP), Stone Energy (SGY), and Denbury Resources (DNR).
For more information on crude oil price forecasts, read Hedge Funds’ Net Long Positions in US Crude Oil Rose Again.
Read Crude Oil Market: Is OPEC Its Own Worst Enemy? and OPEC, Saudi Arabia, and the US Dollar Impact Crude Oil Prices to learn more about crude oil.
Read US Natural Gas Market: Exploring Investing Opportunities for more on natural gas.