LONDON (ICIS)--The threat of a lack of spare capacity looms over the crude oil market, leaving it vulnerable to price shocks, the OPEC Secretary General said on Thursday.
Mohammed Barkindo said he was “very concerned” about the availability of a production buffer.
Speaking during a press briefing after an industry event in London, Barkindo insisted that the markets remain well supplied but are reacting to the perception of a possible supply shortage.
Oil prices have been buoyed to four-year highs by expectations of thinner supply, with US sanctions on Iran set to start on 4 November, and Venezuela’s political unrest prompting turmoil in its oil industry.
OPEC met in Algeria on 23 September to discuss bridging the widening gap between supply and demand.
However, after voting against ramping up production, oil prices jumped, reflecting investors’ fears of the market becoming undersupplied.
Iran’s exports have already reportedly fallen by 1.4m bbl/day, with OPEC figures revealing production has been dented 350,000 bbl/day year on year.
Venezuela’s output has crumbled, losing almost 1m bbl/day in since 2017, according to JODI and OPEC data.
Saudi Arabia and Russia are poised to be increasing production to plug the holes left by the missing Iranian barrels in the market, but it remains unclear to what extent they are able to.
Saudi Aramco has recently said that the key oil producer does have an additional 1.5m bbl/day of sustainable capacity.
However, in September Saudi Arabia’s oil production hit 10.53m bbl/day, a two-year high. In August 2016, the country hit its record high of 10.7m bbl/day, OPEC data shows.
So far, the market has not yet seen any further output beyond this.
The United Arab Emirates (UAE) could offer some breathing room with the CEO of the Abu Dhabi National Oil Corporation (ADNOC) saying at the Oil and Money conference on Wednesday that the company is aiming to increase production by 500,000 bbl/day to 3.5m bbl/day by the end of the year.
The US could also have a role to play, with strategic petroleum reserves at around 658.7m bbl. A prolonged and well-managed injection of this stockpile into the market could bolster global supply.
However, this short-term solution could have the inverse effect, highlighting supply issues and pushing prices up by stoking investor fears of a tight global market.
Barkindo also said that OPEC has the ability to fill the current supply void, but the market remains concerned about the possibility of further disruptions.
With the supply cushion stretched so thin, additional production losses could spark an oil price hike.