OPEC+'s continued oil output increases are eroding the group's spare production capacity, a vital cushion that has helped to mitigate volatility in recent years…
OPEC+'s continued oil output increases are eroding the group's spare production capacity, a vital cushion that has helped to mitigate volatility in recent years. Energy traders may therefore face rockier days ahead.
The prevailing belief in oil markets over the past three years has been that any supply shortfalls could be swiftly met by OPEC+, the group of producers and allied nations including Russia, after they jointly cut output in 2022, ultimately slashing production by as much as 5.85 million bpd, or around 5.5% of global demand.
This resulted in an increase in global “spare capacity,” what the International Energy Agency defines as "capacity levels that can be reached within 90 days and sustained for an extended period." In other words, the amount of additional supply that could be quickly and sustainably injected into global markets.
Shock Absorber Rapidly Thins
The existence of this buffer likely helped mitigate spikes in oil prices during the Israel-Iran war last June and has probably tamped down volatility as the war in Ukraine has escalated.
If OPEC+ could ramp up production rapidly, markets had no reason to panic in the face of any potential supply disruption.
But that shock absorber has
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