Saudi Arabia and the UAE have the capacity to produce more crude oil, but they won't tap that capacity—at least not yet, according to three anonymous Reuters sources.
The message is a critical one for the OPEC producers to get across to the market, which cannot be seen as losing its control over the market—control that comes only from having the spare capacity to affect the market should the need arise.
According to the sources, Saudi Arabia and the United Arab Emirates are ready to deliver a "significant increase" in crude oil production if the market should run up against a severe supply crisis this winter. The sources said that this spare capacity would only be tapped in the event of a supply crisis.
"With possibly no gas in Europe this winter, with a potential price cap on Russian oil sales in the New Year, we can't be throwing every barrel on the market at the moment," one of the Reuters sources said, "The only time we can prove we have more spare capacity is when it comes to a long-lasting crisis."
The sources said that combined, OPEC members have between 2 million bpd and 2.7 million bpd in spare production capacity.
Nevertheless, OPEC+--and OPEC—has failed to meet the current production targets laid out by the OPEC+ agreement agreed to two years ago. The most recent data suggests that the group's compliance rate with its production cuts is 320%, producing more than 2.5 million bpd under target.
Despite the group's under production, global oil prices have eased in the recent week. Saudi Arabia, however, raised its official selling price for most of its crude grades to most markets—including Asia.
By Julianne Geiger for Oilprice.com
More Top Reads From Oilprice.com:
- OPEC+ To Boost Production Target By 100,000 Bpd In September
- German Chancellor: Germany Could Keep Nuclear Power Plants Operating After All
- Oil Falls As EIA Reports Large Crude Inventory Build