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Cyril Widdershoven

Cyril Widdershoven

Dr. Cyril Widdershoven is a long-time observer of the global energy market. Presently he works as a Senior Researcher at Hill Tower Resource Advisors. Next…

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OPEC’s Best Kept Secret Will Soon Be Revealed

  • Russia’s invasion of Ukraine has sent oil prices soaring and could soon deprive oil markets of more than four million barrels of Russian oil. 
  • For decades, OPEC has been looked to in times of crisis to stabilize oil markets, and in the coming weeks it is likely the cartel will be called upon again.
  • While it is widely believed that Saudi Arabia and the UAE have some spare capacity, OPEC’s real spare capacity has remained the cartel’s best-kept secret.

Russia’s invasion of Ukraine has upended global energy markets and, if stability doesn’t return soon, that could have serious geopolitical consequences for OPEC members. The pre-invasion hydrocarbon markets were almost in equilibrium, as stable global economic growth combined with rational management strategies from the OPEC+ alliance to balance markets. Despite a global pandemic that disrupted the global economy for two years, energy markets had managed to return to a level of relative stability. Some were even predicting a post-Covid order in which OPEC+ would experience an era of strong influence and power. Today, the OPEC+ alliance appears to be hanging by a thread as Russia faces an economic crisis on the back of sanctions imposed in response to its invasion. The ongoing shift inside OECD countries, especially the EU, the UK, and the U.S., to wean themselves off Russian energy supplies, is dramatic and could prove to be influential in isolating Russia from the wider energy market.

At a time when global oil and gas markets were already facing some supply issues, Russia’s invasion of Ukraine really threw fuel on the fire. Western energy-dependent countries are now calling on others to increase oil and gas production and exports not only to quell the global thirst for energy but also to counter the rapid rise in prices. All eyes are on OPEC, as the oil exporters group, some call it an oil cartel, is considered the only viable option in the short term to supply more. Until now, all calls from Washington, London, and Brussels appear to have fallen on deaf ears. In a seemingly desperate move to influence OPEC’s leaders, British PM Boris Johnson flew to Saudi Arabia, officially to discuss possible investment agreements, but mainly to push for additional oil volumes from the Kingdom. During meetings with Saudi Crown Prince Mohammed bin Salman, the defacto ruler of the Kingdom, and his counterpart Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed, Johnson pushed for additional oil supplies, while also discussing Western sanctions on Russia. The Prime Ministers' efforts, however, have been met with silence, no new energy promises have been made by either party. 

According to Johnson, when asked about a potential change in OPEC’s production strategies, MBS and MBZ both made it clear that they understand the need for stability in the global oil and gas markets. The real answer from both OPEC leaders was very clear indeed, at this moment they will not change their production and export strategies and they will not endanger their strong relationships with Russia’s leader Putin. These responses were not particularly surprising for analysts.

OPEC has always prided itself on maintaining a healthy spare production capacity in order to influence oil markets. For decades, OPEC producers have been the center of attention for traders, importers, and financial analysts, and have always been considered the ultimate resource for energy in case of a global crisis. Saudi Arabia, and lately also Abu Dhabi, have been seen as the ultimate swing-producers that clients could rely on if a sudden geopolitical or technical issue were to occur blocking potential suppliers. The Kingdom is still seen as the ultimate swing-producer, holding a spare capacity of between 1.2-2.1 million bpd. In the last couple of years, Abu Dhabi’s upstream expansion has pushed it into a position of being a swing producer, with 0.6-1.2 million bpd. Riyadh’s geopolitical power position is directly related to this theoretical production capacity, as it mitigates the removal of Iran or Venezuela from oil markets. Abu Dhabi’s extra volumes are becoming increasingly important in such a tight oil market. Before the pandemic, US shale companies were also seen as swing producers, even if their long-term production capacity differed. 

Since the end of the pandemic (which was the first time that global analysts seemed to understand that the market was heading towards a supply crisis), the market has had to reassess this narrative of spare capacity. The lack of new oil and gas investment and discoveries in recent decades has left oil markets drastically unprepared for such a shortage. Some have warned that part of the current OPEC+ export strategy is based on internal capacity constraints. In a market that was slowly recovering from major demand destruction, OPEC members could hide their domestic production constraints behind the facade of a conservative production policy. Now, with Russia in crisis and an oil shortage looming, Saudi Arabia, the UAE, and other members will need to put their money were their mouth is. If they fail to act now, rumors about a lack of spare production capacity will become increasingly believable. Current analysis already indicates that most OPEC producers are incapable of increasing production. Saudi Arabia and the UAE are believed to have higher capacity, but the current silence from both players is not going to instill confidence in observers. 

A possible reality is hovering on the horizon in which 4+ million Russian oil barrels are stuck on Russian soil and the market is unable to find a substitute for them. If Saudi Arabia and the UAE are not able to supply that much-needed 2-3 million bpd to Western markets, oil prices will soar to unseen heights. A potential failure to find a swing-producer would not only lead to a real energy price crisis but would also undermine the current strategic power OPEC holds. Geopolitically, OPEC producers’ attractiveness to others (financial markets, manufacturers, and investors, but also defense/security) is linked to their oil and gas supply capabilities. Without this, the entire geopolitical equation will change.

OPEC Production Capacity




Saudi Arabia


Saudi Arabia, Iraq, the UAE, and Kuwait have 4 million bpd of spare capacity - in 3-6 months

By Cyril Widershoven for Oilprice.com

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  • Mamdouh Salameh on March 20 2022 said:
    OPEC+ has emerged from the pandemic as the most influential player in the global oil market. Its most important objectives are to ensure a balanced global oil market and a Brent crude oil price ranging from $80-$100 a barrel being the price the overwhelming majority of OPEC+ members with the exception of Russia need to balance their budgets.

    On the other hand, US shale oil is a spent force unable to raise production meaningfully using capita discipline as an excuse. The maximum shale oil drillers could raise their production in 2022 is estimated at 200,000-300,000 barrels a day (b/d) over the claimed average of 11.0 million barrels a day (mbd) in 2021. I say claimed average because I estimate the real figure is 600,000-700,000 b/d smaller, namely, 10.3-10.4 mbd.

    The excessive rise in prices resulting from the Ukraine conflict is temporary. Brent crude will return to the pre-conflict level of $94-$95 a barrel the minute a real ceasefire is implemented and a settlement is eventually reached on the basis of the neutrality of Ukraine on the Finland model being free to interact with Europe but avoiding institutional hostility to Russia like joining NATO. This is a recipe that Henry Kissinger suggested more than seven years ago.

    OPEC+ believes that the global oil market is still balanced despite the Ukraine upheaval. Therefore, it sees no necessity to increase production beyond the agreed 400,000 b/d monthly. OPEC+ wants to keep whatever oil spare capacity it when the market becomes imbalanced.

    By the time OPEC+ restored its oil production to pre-COVID level by the end of 2022 its spare capacity would have dwindled to an estimated 2.0 mbd. Moreover, Saudi Arabia’s claim that it has a production capacity of 12.0 mbd is untrue. The Saudis can only produce 7.0-8.0 mbd with additional 2-3 mbd coming from its stored oil to make a maximum production of 10 mbd.
    On the other hand, UAE’s spare capacity is estimated at 100,000-200,000 b/d.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Lee James on March 20 2022 said:
    There is the question of OPEC spare capacity. And there's the question of sanctions leakage -- the Putin oil that gets by the sanctions and finds its way to China, India and other countries that are desperate for oil and do not see a blood price.

    Considering the geopolitical and environmental pollution qualities of oil, the supply/demand balance is made all the more interesting.
  • Maxander on March 21 2022 said:
    US FED has hiked Funds Rate by 0.25% & signaled 6 more rare hikes up to 1.9% by the end of 2022 is a clear indication for OPEC to think before increasing oil production in 2022 or perhaps in 2023 as well.

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