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Saudi Arabia’s government ordered state oil company Saudi Aramco to halt its oil expansion plan in January, and to target a maximum sustained production capacity of 12 million barrels per day (bpd), 1 million bpd below a target announced in 2020.
Saudi Arabia and fellow members of the Organization of the Petroleum Exporting Countries (OPEC) such as the UAE, Iraq and Kuwait between them hold almost all the world’s spare oil production capacity – idle output that can be brought online in times of crisis.
Here are some facts about Saudi and global spare capacity:
How much is there?
Saudi Arabia currently holds spare capacity of 3 million bpd, a source with direct knowledge of the matter said, equal to about 2.9 per cent of daily world demand according to Reuters calculations.
The International Energy Agency estimates that OPEC’s total spare capacity is 5.1 million bpd, of which 3.2 million bpd is held by Saudi Arabia, 1 million bpd by the UAE, 400,000 bpd by Iraq and 300,000 bpd by Kuwait.
Spare capacity is held by the largest producers in OPEC as well as some of their allies as a consequence of their decisions to cut supply to the world market due to rising output from non-allied producers such as the US, Brazil and Guyana.
OPEC+, which includes OPEC, Russia and their allies, has deepened cuts in the past few years, reducing production by almost 6 million bpd in a series of steps since 2022 to support the market.
A new OPEC+ cut of 2.2 million bpd, of which Saudi Arabia is contributing 1 million bpd, is in place for the first quarter of 2024.
Outside OPEC, spare capacity is limited. The IEA estimates Russia has sustainable capacity of 10 million bpd, about 500,000 bpd more than it produced in December.
Azerbaijan and Kazakhstan, also members of OPEC+, each have 100,000 bpd of idle output capacity, according to the IEA.
Oil’s central banker
As the world’s largest holder of spare capacity, the kingdom is uniquely able to add supplies to oil markets in time of need. It has shown there is a limit to how much it is prepared to cut to support the market when other producers are pumping more.
It tapped spare capacity to pump more in 2020.
Building and maintaining surplus capacity costs billions, and some analysts said the Saudi move could give the kingdom more for other Saudi government projects.
The level of spare capacity – or the perception of how much is available – can influence world oil prices.
Ample spare capacity has been cited as a dampening factor on prices by some analysts.
HSBC said in a report last week that OPEC’s “above average” spare capacity will offset the impact of Red Sea disruptions and rising geopolitical risks, with Brent crude oil likely staying between $75 and $85 a barrel in the medium term.
Scepticism over how much spare capacity there is usually grows at times of high oil prices and strained global production, such as in 2022 at the start of the Russia-Ukraine crisis.