Oil Cutbacks Coming, But More Supply in the Works

Friday, December 11, 2015

In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.

Let’s take a look.

1. OPEC’s Spare Capacity

– OPEC still has room to ramp up production- Iran is expected to bring 0.5 million barrels per day (mb/d) to 1 mb/d next year. – Saudi Arabia has 2 mb/d to work with, although it’s highly unlikely it will drawdown a large portion of that. – In fact Saudi Arabia’s 2 mb/d is historically low. OPEC had more than 6 mb/d in spare capacity in 2002 for example.- Libya’s figures are not counted in the chart above. Although widespread violence and an ongoing political and security crisis will prevent full restoration of its potential, Libya still has over 1 mb/d in unused oil potential. Some of that could come back if one or both of the rival government factions can manage to open up oil export terminals. – In the near-term, OPEC could add more crude to the oversupplied market. Iran, Saudi Arabia, Iraq, and Libya all could chip in to raise global supplies.

2. Oil prices track speculative movements 

– Oil prices tend to move with the speculative movements of oil traders. When speculators bet oil prices will rise, there is upward pressure on prices, and vice versa.

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