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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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OPEC Seeks Capacity Buffer To Counter Dollar-Led Oil Price Jumps

Oil production rig in the jungle

OPEC is encouraging all its members to build buffers of oil production capacity in order to be able to counter this year a surge in oil prices led by a weaker U.S. dollar, the UAE’s Energy Minister Suhail Al Mazrouei told The National in an interview on Thursday.

The weakening of the U.S. dollar in recent months was one of the reasons for the oil price rally. Both WTI and Brent prices hit three-year highs at the end of January as the dollar further slipped, before the oil price rally came to an end two weeks ago with the financial markets turmoil, soaring U.S. oil production, and money managers taking profits from part of the overstretched net long position they had amassed in oil and oil product futures.

“We are incentivising all the group members to have some buffers. That buffer is [to assure] that if you have a surge [in demand] or issue in one of the countries you can replace that in the market and achieve a short and medium-term re-balance of the market,” Al Mazrouei told The National, answering a question about the downsides of a weak dollar on prices.

The UAE itself has plans to raise capacity, so do Kuwait and Iraq. Saudi Arabia currently also has spare production capacity, since it is cutting some 500,000 bpd from its production as part of the OPEC/non-OPEC deal. The oil production capacity of Iraq is nearing 5 million bpd, its oil minister Jabbar al-Luiebi said last month, while Baghdad is currently producing around 4.4 million bpd.

While OPEC producers are surely happier with the price of oil now than last year or in 2016, the cartel is careful not to overshoot its own strategy to tighten the market too much or see wild upswings in prices that can further motivate U.S. shale drillers to pump more oil.

Speaking to The National, Al Mazrouei dismissed the U.S. shale threat to OPEC’s market share—like many other OPEC officials have been doing lately—and instead focused on an upcoming shortage of supply due to the low level of investments in recent years.

By Tsvetana Paraskova for Oilprice.com

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