COMMENTARY – How much spare oil capacity does Saudi Arabia really have?

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Saudi Arabia has pledged to cover any supply gap that may emerge as Iranian oil goes offline, but how much spare capacity does it really have?

The massive reserve of spare capacity located in the Saudi desert is the stuff of legend, taken as gospel in the world of oil. After all, Saudi Arabia is the only country in the world that can ramp up or down millions of barrels of production on short notice.

But Saudi Arabia’s mythical spare capacity may finally be tested. Saudi officials insist that they can produce up to between 12.0 and 12.5 million barrels per day (mb/d) if needed. With output at about 10.4 mb/d in August, the latest month for which data is available, that suggests that they have around 1.5 to 2 mb/d of spare capacity.

Not everyone buys that figure.

The EIA says that total OPEC spare capacity is set to average 1.49 mb/d in the fourth quarter, which is rather low by historical standards. The EIA sees OPEC spare capacity falling to 1.19 mb/d by the fourth quarter of 2019.

In 2016, when Saudi Arabia was flooding the market, it was still only producing at about 10.6 mb/d, right around where it is producing today. As such, Saudi Arabia’s claims have not really been put to the test. Saudi Arabia has indicated it could add around 500,000 bpd in the coming months, which could put production right around 11 mb/d.

Bloomberg reported that industry executives privately said on the sidelines of the Asia Pacific Petroleum Conference in Singapore that they doubt Saudi Arabia can even produce 11 to 11.5 mb/d for any lengthy period of time, far lower than the stated 12.5 mb/d.

Some within Saudi Arabia agree. Producing “11 million is already a stretch, even for just a few months,” one Saudi official told the Wall Street Journal for an article on September 21

The jury is still hung on Saudi Arabia’s seemingly unfathomable oil reserves.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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