BMI Research, a Fitch Group company, has indicated that the 2.19 million barrels per day of spare production capacity of Organization of Petroleum Exporting Countries (OPEC) may pose no threat to Brent rising price in 2018.
In a view of the market seen by business am live, BMI analysts acknowledged that OPEC holds sufficient spare capacity to tip the global oil market from deficit to surplus in 2018 but sees a low probability of the capacity being brought into play, given continued strong commitment to the OPEC cut deal from Saudi Arabia and its Gulf Cooperation Countries allies.
“The rise in oil prices (with Brent touching $70.0/bbl in intra-day trading) has raised concerns over compliance slippage with the 1.80mn b/d OPEC, non-OPEC production cut deal.
“Based on our estimates, OPEC holds around 2.19mn b/d of spare production capacity, within which we include any crude barrels that could be brought to market within six months,” BMI noted.
“Our estimate is relatively conservative, when compared to some other agencies, however, this may in part be down to differing definitions of spare capacity,” it added.
It said all major agencies estimate spare capacity upwards of 2.0mn b/d., that when it adds on Russia, its estimate rises to 2.50mn b/d.
The research firm equally forecasts global net supply growth (for crude, condensates and natural gas liquids) of 1.27mn b/d for 2018 on an annual average basis, putting US shale growth, to which both OPEC and prices are more sensitive, at 390,000b/d y-o-y.
“By both these measures, global spare capacity is substantial. And, significantly, the deployment of this capacity has the potential to swing the global oil market from a small deficit into a large surplus. In our view, though, this is unlikely to happen,” it said.
Brent crude the benchmark for oil prices has been on the upswing since November 17 rising from below $58 to nearly $70 as of January 24, 2018.