OPEC and Saudi Arabia spare oil production capacity

A U.S. official stated on Tuesday that U.S. president Donald Trump would restore his "maximum-pressure" campaign against Iran and bring its oil exports down to zero.

This would increase oil prices, and force others to pump even more.

Saudi Arabia, the United Arab Emirates and Iraq, along with other members of the Organization of the Petroleum Exporting Countries (OPEC), hold the majority of the world's spare production capacity. This is the idle oil that can be turned on in the event of a war or natural disaster.

Here are some facts on Saudi Arabia and global spare capacity

How much is there?

According to the International Energy Agency, OPEC has a total spare capacity of 5.3 million bpd. Of this, 3.1 million bpd are held by Saudi Arabia. The UAE holds 1.1 million bpd. Iraq holds 600,000 bpd and Kuwait 400,000 bpd.

According to the IEA, this total will be equivalent to 5.1% of global oil demand in 2025.

The largest producers of OPEC and some of their allies hold spare capacity as a result of their decision to reduce supply to the global market because of the rising production from non-allied countries such as the U.S.A., Brazil, and Guyana.

OPEC+ (which includes OPEC and Russia, as well as their allies) has intensified cuts. They have reduced production by nearly 6 million bpd over a number of steps, since 2022, to support the market.

Saudi Arabia will continue to contribute 1 million bpd of the 2.2 million bpd cut that OPEC+ has made for the first quarter 2025.

OPEC OUTSIDE

Spare capacity outside of OPEC is very limited. The IEA estimates that Russia's sustainable capacity is 9.8 million bpd. This is about 520,000 bpd higher than what it produced in December.

According to the IEA Kazakhstan, a member of OPEC+ as well, has a 200,000 bpd idle production capacity. Another member, Oman, holds 100,000 bpd.

OIL'S CENTRAL BANCHER

Saudi Arabia is the largest oil producer in the world, and as such has a significant influence on the international market. Its role can be compared to that of a central lender.

In times of crisis, the kingdom has the unique ability to increase oil supply. The kingdom has also demonstrated that it will only cut so much to support the oil market when other producers pump more.

Saudi Arabia used spare capacity to pump in a short price war with Russia in 2020 for market share.

The kingdom temporarily increased production to 12 million bpd, and also used its vast global storage. The kingdom pumps around 9 million barrels per day.

Impact on prices

World oil prices can be affected by the level of spare capacity, or perceptions of it.

Some analysts have cited ample spare capacity as a factor that has dampened prices in recent months.

The skepticism about the spare capacity usually increases during times of high oil costs and global production strains, like in 2022 after Russia invaded Ukraine.

(source: Reuters)