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Julianne Geiger

Julianne Geiger

Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.

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Saudi Arabia And The UAE Won’t Be Tapping Emergency Oil Capacity

  • 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.
  • Combined, OPEC members have between 2 million bpd and 2.7 million bpd in spare production capacity.
  • Message about OPEC spare capacity is seen as 'critical' by analysts.
Aramco

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

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  • Mamdouh Salameh on August 04 2022 said:
    Saudi Arabia and UAE have no spare oil production capacity. Moreover, they are producing at maximum. This message was conveyed to French President Macron by the President of the UAE Sheikh Mohammed bin Zayed Al Nahyan.

    Furthermore, OPEC+ has hardly any spare capacity. That is why OPEC+ is producing 2.5 million barrels a day (mbd) under target.

    The fact that Saudi Arabia has recently hiked the prices of all its crudes to Asia, Europe and the United States signals that it wants to take advantage of the current high prices to raise its oil revenues from the same volume of crude exports since it has no spare production capacity to raise its production and therefore its exports. It is also signalling to the global oil market not to expect any meaningful rise in OPEC+ production since it has hardly a spare capacity.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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