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, analysts say, ONA reports citing Reuters.
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 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.