OPEC does not have the additional spare capacity to lift crude oil production much more than it is doing today, Nigeria's Petroleum Minister Timipre Sylva told Anadolu Agency on Friday.
"It is not something that you can open a tap for at this point. You must have the additional capacity, the idle capacity to bring on, but it takes a lot of work and a lot of investment for it to have additional production," the Nigerian minister told the Turkish news agency in an interview.
Many OPEC producers, including Nigeria, are currently pumping at the peak of their capacities, Sylva noted.
"If there is anything we can do to produce more, OPEC will be the first to produce more. But unfortunately, this capacity doesn't exist in most OPEC countries," he told Anadolu Agency.
OPEC is not too happy with very high oil prices because it wants prices at levels that do not hurt the consumers of its crude, but the organization cannot do much more to pump more, the Nigerian minister said.
There is "absolutely" a supply problem in the oil sector right now, Jeff Currie, global head of commodities at Goldman Sachs, told Bloomberg earlier this week.
There are broad-based supply constraints in oil producers, particularly non-core OPEC, Currie said. Every producer except for Saudi Arabia and the UAE is producing less today than they were in 2020, he added. Throw in the Russian shock, and the supply constraints are the most severe in decades, since the 1970s, according to Currie.
In February, the OPEC+ group continued to severely underperform in its oil production levels compared to the target in the pact, with February output at more than 1 million barrels per day (bpd) below the collective quota and compliance rate jumping to 136 percent, Reuters reported last month.
In March, OPEC's second-largest producer, Iraq, produced just 4.15 million bpd of crude oil, well below its quota under the OPEC+ agreement, according to data from Iraqi state oil marketing firm SOMO seen by Reuters.
Oil production in OPEC's key partner in the OPEC+ deal, Russia, has also shown signs of a decline in recent weeks.
By Tsvetana Paraskova for Oilprice.com
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Comments
That is one reason why OPEC+ has refused adamantly to raise its production beyond its monthly 400,000 barrels a day (b/d). The other important reason is that OPEC+ believes the global oil market is still balanced and therefore there is no need to raise its production. OPEC+, the most avid reader of the oil market, might be right. It wants to keep whatever small spare capacity it has to use when the market becomes imbalanced.
And contrary to claims otherwise, OPEC+ prefers a Brent crude oil price ranging from $80.0-$100.0 a barrel because this is the price range the overwhelming majority of its members with the exception of Russia need to balance their budgets.
While Saudi Arabia has actually no spare capacity, it can still meet its obligations by tapping into its stored oil. On the other hand, UAE’s current spare capacity ranges from 100,000-335,000 barrels a day (b/d).
There is no doubt that the market is getting tighter and is definitely facing a supply problem exacerbated by underinvestment since the start of the pandemic, a shrinking global spare production capacity and steeply declining global oil inventories. The supply problem will continue for the next five years until the current global investments in oil and gas reach fruition.
That is why I doubt if the latest SPR release of 180 million barrels by the United States and the additional release of 60 million barrels by the IEA amounting to 1.33 mbd would be sufficient to deal with the scale of the problem. At best, they could slightly alleviate the tension.
Any ban on Russia’s oil and gas exports could plunge the global economy in an energy crisis far worse that it has ever experienced before.
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Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London