Crude prices have been surging the last few weeks with the expected loss of Iranian supply beginning November 4th. With that, the U.S. has been ramping up pressure on OPEC to increase production in an attempt to lower oil prices.
Over the weekend OPEC had a scheduled meeting to decide a supply strategy, the post meeting reports are that OPEC is content with the overall balance between supply and demand for now. The message delivered is there is enough spare capacity among OPEC members and if need be they are capable of meeting excess demand by customers. OPEC is concerned they don’t want to ramp up production and create an oversupplied market that will have a negative impact on their oil revenues.
However, there are concerns abound that have some crude bull predicting $100/bbl on Brent with the potential supply gaps that might unfold within the next 3-6 months.
In addition to upcoming Iranian sanctions, lower production from Venezuela along with violence in Nigeria and Libya have added to the vulnerability of supply in global markets. Further, the International Energy Agency predicts strong oil demand growth of 1.4 million barrels per day (bpd) this year and 1.5 million bpd in 2019.
A larger concern is that Saudi Arabia’s spare capacity is not proven. Saudi Arabia has indicated that its spare capacity sits near 1.5 mb/d however that is only an estimate that has not been tested. Current production levels by the Saudi’s are at 10.6 mb/d and producing anything north of that has never been done on a long-term basis.
Thus far, the outcome of the weekend OPEC meetings is oil has reached 4 year high levels this week.