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OPEC+ Won’t Open its Tap for these Reasons

On Tuesday, the US announced a drawdown from its Strategic Petroleum Reserve (SPR) while also expressing hope that OPEC+ will continue to add 400,000 barrels per day (BPD) to its monthly production as planned in July. However, while the US administration wants the alliance to pump more oil to help lower high oil and gasoline prices, the group, which Middle Eastern oil producers and Russia dominate. So it can’t do much more than it already is—even if its only goal is to help American consumers pay much lower gasoline prices.

The leading cause is OPEC+ dwindling spare capacity to pump oil, concentrated in just a few large Middle Eastern producers. For months, the OPEC+ group has struggled to meet its total quota since African OPEC+ members have been considerably underperforming due to a lack of spare capacity and investments. The excess capacity, according to analysts, is significantly smaller than government projections.

OPEC+ Won’t Open its Tap for these ReasonsEven if OPEC+ heeded the constant requests and coordinated efforts from consuming nations—led by the US—to pump more, the output is unlikely to increase quickly. By keeping spare production capacity at low levels, the market—and oil prices—would be more exposed to supply disruption shocks. The bloc’s extra ability will diminish as output increases. Although supply is predicted to surpass demand, adequate spare capacity might fall below four mb/d by 2Q22, compared to a cushion of 9 mb/d in 1Q21, and be concentrated in only a few Middle Eastern countries.

It also returned to the message it was formed with during the 1970s oil crisis: keep global oil supply reliable to satisfy demand. Global spare capacity is shrinking, emphasizing the need for further expenditures to fulfill orders in the future.

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