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How much spare capacity can return to oil market this year?

Oil&Gas Materials 27 September 2018 10:20 (UTC +04:00)

Baku, Azerbaijan, Sept.27

By Leman Zeynalova – Trend:

Spare capacity of oil has dropped sharply in recent months, according to the estimations of Fitch Solutions Macro Research (a unit of Fitch Group).

“At the peak of the deal, OPEC and Russia removed upwards of 2 million b/d of production. As of August, this had dropped to around 1.4 million b/d, of which we calculate less than 250,000 b/d can be viably returned to market this year,” said the report.

The company analysts point out that Venezuelan output continues to tumble, while the full impact of US sanctions on Iran has yet to be felt.

In addition, production in both Libya and Nigeria - which is extremely volatile - is at or near peak capacity, skewing risks to the downside, according to the report.

“A number of markets outside of OPEC are growing their production - including Brazil, Canada, North Sea and Former Soviet Union (FSU) - but the pace of greenfield additions has begun to slow. Added to this, output growth in the US - the main source of supply growth ex-OPEC - is being subdued by pipeline constraints in the Permian,” said Fitch Solutions.

Spare capacity in the Middle East and Russia will not, according to the company’s data, be sufficient to prevent a significant tightening on the supply side over the coming quarters.

Nevertheless, Fitch Solutions believes that momentum in the market is positive and, from a technical perspective, the rally does not yet appear to be overdone.

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Follow the author on Twitter: @Lyaman_Zeyn

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