Even If OPEC Had Agreed to Pump More Oil, It Couldn't
So much attention has centered on the market's reaction to OPEC's failure to reach a consensus to boost oil production that folks are missing the bigger picture. Or at least avoiding the more ominous question. Even if the cartel had agreed to pump more crude, could they actually do it and would the oil even make it past OPEC's borders?
The data suggests it would be a challenging feat to accomplish. And that has more far-reaching implications on the world than the stand off between OPEC-member countries or the initial reverberations through the oil markets.
Saudi Arabia, OPEC's largest producer, along with Kuwait, Qatar and the United Arab Emirates wanted the group to raise its actual production by 1.5 million barrels a day, Bloomberg reported. That they were talking about "production" and not "quotas" is an important point.
OPEC agreed in December 2008 to set its production quota at 24.84 million barrels per day. And ever since, OPEC-member countries have failed to comply, often producing far more. OPEC countries pumped 28.8 million barrels a day in April.
That means Saudi Arabia and friends want to raise oil production to 30.3 million barrels a day.
Where would 1.5 million barrels a day come from?
OPEC has an estimated 4.5 million barrels per day of spare capacity, so producing another 1.5 million bpd sounds easy enough. The vast majority of that spare capacity is in Saudi Arabia and the country's oil ministry said it planned to pump another 500,000 barrels a day to reach 9.5 million bpd regardless of what happened at the OPEC meeting.
But that doesn't mean any of that oil will leave Saudi Arabia, a country with an insatiable energy appetite of its own. The summer air-conditioning season and internal refining will sap at least half of Saudi Arabia's proposed increase, Reuters reported. This domestic oil-sucking trend will have global ramifications. If Saudi Arabia's current rate of growth in domestic oil consumption continues unchecked, it will burn through almost as much as it produces by 2028, author and blogger Jeff Rubin noted recently.
OK, what about the rest of OPEC? Consider Libya out of the oil picture. Libya's production has dropped almost completely from 1.6 million bpd since fighting began in February, according to the International Energy Agency.
Not a lot of options are left. Venezuela, Iran, Algeria, Angola and Ecuador were reportedly staunchly opposed to any increases in production. The assumption here is that these countries need the higher prices to support government-funded programs. But it should be noted, that none of these countries have substantial spare capacity.
Which brings us to the white elephant not in the OPEC meeting room, at least not officially. Russia, as Rubin also noted, is the one country capable of producing 10 million barrels a day.
Photo from NOGA
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