Fatih Birol, Executive Director of the International Energy Agency (IEA), has warned that proposed supply cuts by key oil producers may have negative repercussions for the markets further down the line.
Birol believes that although there is ample supply at the moment, the markets may become overly tight given the limited spare capacity in Saudi Arabia. At a news conference in Bratislava, he said:
“Currently markets are very well supplied but we should not forget that spare capacity in Saudi Arabia is very thin, therefore cutting the production significantly today by key oil producers may have some negative implications for the markets and further tightening the markets.”
He went on to ask consumers and producers around the world to exercise “common sense” during these challenging times.
Led by Saudi Arabia, OPEC is looking to take somewhere between 1 million to 1.4 million barrels per day (bpd) off the market to prevent oil inventories from growing again. Birol’s comments would seem to indicate a danger of undersupplying the markets without having the spare capacity to redress the situation.
While Birol specifically indicates the limited spare capacity in Saudi Arabia, there is a general lack of it around the world. For example, US oil production is also unlikely to rise significantly in the short term as shale operators like ExxonMobil, the maker of greases like Mobilith SHC PM 460 and Mobil Unirex N3, are now running into takeaway constraints in the Permian Basin that limit production growth.