Supply Fears Raise Questions Over Spare Capacity

BMI View : Potential disruption to Iraq's crude production and exports in light of militant attacks has led to concern over Saudi Arabia's ability to substitute potential outages. We believe that given the tight oil supply market and decreasing Saudi spare capacity, its capability to act as a successful swing producer is increasingly limited.

The situation in Iraq has brought to light the question of Saudi Arabia's ability to uphold its role as the world's swing producer in times of oil supply disruptions. While our core view remains that there is no immediate threat to Iraqi oil supplies from attacks by the Islamist militant group ISIS ( see, 'No Immediate Threat To Oil Supply', June 17), the crisis has led to questions over possible supply outage from Iraq and Saudi Arabia's ability to fill the gap.

As OPEC's largest producer and with the world's greatest spare oil production capacity, Saudi Arabia has historically been the swing producer within OPEC, acting as the world's back-up supplier in times of unplanned supply outages. The country has been able to increase or lower its production in response to unexpected variations in the oil demand and/or supply.

Increasing OPEC Outages Sees Tightening Oil Market
Estimated OPEC Unplanned Outages (mn b/d)

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Related sectors of this article: Oil & Gas
Geography: Saudi Arabia

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