OPEC Spare Capacity Is Limited
Enverus Intelligence Research (EIR), a subsidiary of Enverus, the leading global energy data analytics and SaaS technology company, is cautioning about the limited benefits U.S. President Joe Biden’s trip to the Middle East will have on increased oil production or changes to crude prices. The report, OPEC – Supply Capacity Constraints, points out that OPEC spare capacity appears to have almost entirely eroded as oil production by the group has ramped higher over the last year. EIR analysts argue that political pressure on major OPEC oil producers to increase supply as Russian oil is progressively sanctioned are therefore unlikely to yield immediate results.
“If President Joe Biden is hoping that his July trip to the Gulf will yield an immediate and significant tranche of extra oil supply from Arab Gulf producers, he will likely be disappointed,” said Bill Farren-Price, report author and a director at Enverus Intelligence Research. “A more likely outcome is that if talks go well, Riyadh commits to increase supply over the medium term.”
Key takeaways from the report:
A reported conversation between France’s President Emmanuel Macron and UAE leader Mohammed bin Zayed backs EIR’s assessment that there is very little sustainable spare oil production capacity within OPEC countries as the organization winds up the output cuts imposed in mid-2020. Amid the progressive loss of Russian exports into the EU countries in 2H22, this reinforces EIR’s bullish outlook for Brent, which we expect to move above $120 heading into 2023.
Aside from sanctions-bound Iran, EIR reiterates its view that consumer pressure on OPEC countries for extra oil supply in the very near term is unlikely to produce positive results. EIR analysts do, however, believe Saudi Arabia could increase supply towards its official 12 MMbbl/d ceiling if it deploys additional rigs over six to 12 months. Unless domestic refining is squeezed, stocks drawn from storage or direct-burn crude reduced, that capacity is not immediately available now.
Members of the media should contact Jon Haubert to schedule an interview with one of Enverus’ expert analysts.
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