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Global oil supply crunch to test OPEC spare capacity

Gasoil News - Published on Wed, 15 May 2019

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Reuters reported that oil production capacity could fall to under one percent of global oil demand by the end of the year if OPEC compensates falling production from Iran and Venezuela, leaving oil prices exposed to sharp swings in the event of unplanned outages. Spare capacity is the extra oil a producing country can bring onstream and sustain at short notice, providing global markets with a cushion in the event of natural disaster, conflict or any other cause of an unplanned supply outage.

Very few oil producers hold spare capacity, with Saudi Arabia, the largest producer in the Organization of the Petroleum Exporting Countries, and the world’s biggest oil exporter, holding the lion’s share.

As the oil market faces major supply crunches this year, largely due to U.S.-imposed sanctions on OPEC’s Iran and Venezuela, analysts say there’s enough spare capacity to compensate for their lost production.

Production from the two countries PRODN-VE PRODN-IR has already fallen by a combined 1.85 million bpd from 2018 peaks, according to Reuters estimates, but production is expected to fall further, especially in Iran.

While analysts expect Venezuelan production to more or less stabilise at current levels of around 700,000-800,000 bpd for the rest of the year, Iranian oil production is forecast to fall further after as the United States seeks to completely choke off its exports.

Energy Aspects geopolitical analyst Riccardo Fabiani said “Iran is around 2.5 million bpd right now and we see it down to around 2 million bpd by the end of the year.

Goldman Sachs forecasts that Iran exports will stabilise at 400,000 bpd, 900,000 bpd lower than April levels.

Barclays said in a note “While Saudi Arabia, UAE and other OPEC countries will likely fill the gap created by lower Iranian exports, albeit more reluctantly than last year, it will come at the cost of a significant reduction in the spare capacity and also increase the risks of a potential conflict in the Middle East.”

Goldman Sachs also sees enough spare capacity in OPEC to cover Venezuelan and Iranian lost barrels

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Posted By : Rabi Wangkhem on Wed, 15 May 2019
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