Energy Prospectus

President Trump is at it again, sending tweets telling OPEC to raise production so Americans can enjoy the lowest gasoline prices in the world a bit longer. My take is that "tweets" do not increase oil production capacity.

This is from a June 11th report from Petroleum Intelligence Weekly (keep in mind that since 6/11 the oil markets have only gotten tighter)

Opec's Shrinking Spare Capacity Raises Risks

Mounting concern over future production declines led by Venezuela and Iran has flipped the oil market's focus from tightening inventory levels to global spare capacity. To be sure, a severe supply crunch is not expected soon, as US output alone is able to meet the bulk of demand growth this year. But with spare capacity additions often needing significant investments and long lead times, the world will have to lean on its current production cushion for some time. And the picture is bleak. How much spare capacity is out there and how quickly it can come on stream are untested and far from certain. What is clear, however, is that the oil market is far less robust than it was before the downturn. Compared with five years ago, Opec's effective spare capacity is down some 1 million barrels per day, PIW estimates.

PIW calculates that effective global spare capacity has shrunk 17% since 2013 to 3.55 million barrels per day, but even this risks presenting too rosy a scene. Less than one-third of that capacity fits the International Energy Agency's (IEA's) technical definition of spare capacity -- namely, output that can be turned on within one month.

Read full report here: http://www.energyintel.com/pages/eig_ar ... esult=true

Something else that concerns me: From 2010 to mid-2014 we saw oil prices average more than $100/bbl and during that long period there were no significant oil discoveries outside of the U.S. shale plays. Plus, places outside of the U.S., Russia and OPEC produce about a third of the world's oil supply. That group is on steady decline and even $100 oil won't reverse it.

"What spare capacity does exist remains highly concentrated, with roughly 70% of the cushion residing in just one country: Saudi Arabia (see table). Although the kingdom has long been the world's key purveyor of spare capacity, Riyadh is not keen to bear too much of the burden given that surging to full capacity quickly could damage its reservoirs. Reaching its full 12.5 million b/d capacity would likely take more than a year to achieve, and it is only with the expansions of its Marjan, Berri and Zuluf fields that Riyadh is likely to feel comfortable doing so (PIW May28'18). Those expansions will not be completed until 2022-23. The spread of spare capacity is more balanced under the IEA's month-long definition, with Saudi Arabia able to bring on some 400,000 b/d, and Kuwait, the United Arab Emirates and Russia contributing roughly 300,000 b/d apiece." - PIW

Trump can tweet demands all day long; OPEC has very little if any more oil that they can bring to the market quickly.

Goldman Sachs: “The oil market remains in deficit… requiring higher core OPEC and Russia production to avoid a stock-out by year-end.” Goldman Sachs expects production by OPEC and Russia to rise by 1.3 million barrels a day by the end of 2019.

Persian Gulf traders have told Asia Times that’s unrealistic: “Goldman Sachs does not have the figures to assert the capability of Russia and Saudi Arabia to produce so much oil. At most, that would be a million barrels a day. And it is doubtful Russia will seek to damage Iran even if they had the capacity.”