Opec’s Falling Production Capacity Strengthens Saudi Control

As the second US shale revolution continues to gather pace, prospects for Opec being able to unwind its supply cuts in 2019 grow dimmer. Luckily for Opec, its ability to add sizeable volumes next year is also diminishing. The extent of the group’s “involuntary cuts” is growing and these are falling on those countries most likely to consider cheating, preventing them from reneging on any extended commitments.

The decline in oil prices since late 2014 has taken its toll on Opec’s more peripheral members. They have been unable to make the requisite investment to maintain, let alone grow, production capacity. Lower for longer oil prices are therefore translating into lower for longer production capacity. Opec’s market share is likely to remain depressed well into the next decade, and possibly beyond. (CONTINUED - 1677 WORDS)


chart 1: IEA Eyes Short-Term Opec Capacity Fall Before Iraq, Iran Growth Offsets Venezuelan Collapse (Mn B/D)
table Opec Wellhead Production, February 2018 (Mn B/D, Mees Estimates)
chart 2: IEA Sees Iraq As The Biggest Winner, With Venezuela’s Production Capacity Collapsing (Mn B/D: 2023 Vs 2017)
chart 3: Saudi Arabia Holds Lion’s Share Of Opec’s Spare Capacity*, Neighboring Gulf States Also Hold Sizeable Volumes (Mn B/D)
chart 4: US Crude Output: Latest Eia Forecast* Has Output Hitting 11.25mn B/D By End-2018, But Growth To Ease Off In 2019 (Mn B/D, By Date Of Forecast)
chart 5: Opec’s* 2018 Oil Export Revenues On Track To Rise $250bn From 2016’s Low ($Bn)