OPEC’s spare crude oil production capacity

The EIA estimated that OPEC’s spare crude oil production capacity increased by 60,000 bpd (barrels per day), or 2.8%, to 2.1 MMbpd (million barrels per day) in November 2017 compared with the previous month. OPEC’s spare crude oil production capacity increased 1.2 MMbpd, or 125%, year-over-year. It is also near the highest level in the last seven months. 

OPEC’s spare crude oil production capacity averaged 2.1 MMbpd in the first 11 months of 2017. It averaged 1.2 MMbpd during the same period in 2016.

OPEC’s Spare Crude Oil Production Capacity near 7-Month High

Crude oil prices and OPEC’s spare crude oil production capacity

Brent (BNO) and US crude oil (USO) (UCO) prices increased between 2005 and 2008 when OPEC’s spare oil production capacity levels were low. Lower spare crude oil production capacity limits OPEC’s ability to respond to an increase in demand. Consequently, crude oil (DBO) prices rise. Higher oil (UWT) prices favor oil producers (XLE) (IEZ) like Saudi Aramco, SM Energy (SM), W&T Offshore (WTI), Noble Energy (NBL), and Apache (APA).

When OPEC’s spare oil production capacity is high, it suggests ample headroom to manage oil demand and prices.

Impact 

OPEC’s spare oil production capacity is expected to average 2.1 MMbpd and 1.8 MMbpd in 2017 and 2018, respectively. Estimates of falling spare production capacity in 2018 suggest that OPEC’s crude oil output could rise during the same period. A rise in OPEC’s production is bearish for oil (BNO) prices.

However, OPEC had extended output cuts until December 2018. Any fall in OPEC production is bullish for oil (USL) prices.

Read Brent and US Crude Oil Futures Hit a Multiyear High and Will US Natural Gas Futures End 2017 on a Low Note? for updates on oil and gas.

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