How much of the world's surplus crude oil production capacity does it have?

Since the second half of 2021, international oil prices have continued to rise, and the outbreak of the war between Russia and Ukraine on February 24, 2022, pushed oil prices to rise as high as $139.
13 per barrel after breaking through the $100 and $110 barrels marks on March 1 and 2, respectively
, and the global energy crisis is getting worse.

In the face of rising international oil prices, the United States and many oil consumers in the world have called on Saudi Arabia and other OPEC oil producers to increase oil production and alleviate the growing supply and demand tensions
in the international oil market.
From a market observation and research perspective, an important question is whether Saudi Arabia and OPEC have the ability to
increase oil production.

Based on data from the U.
S.
Energy Information Administration, this article will introduce the historical evolution of global surplus crude oil production capacity, its relationship to changes in international oil prices, and the current situation
.
The U.
S.
Energy Information Administration believes that the global surplus crude oil production capacity in May 2022 is only 3.
28 million barrels per day, less than half of the 2021 average, which explains from one side why international oil prices have continued to rise since the second half of 2021, and may indicate a period of tension in the international oil market in the future
.

Definition of the production capacity of surplus crude oil

For what is the residual crude oil production capacity? Each institution has its own definition and interpretation
.
According to the U.
S.
Energy Information Administration, the remaining crude oil production capacity refers to the maximum existing crude oil production capacity
that can be put into production within 30 days and can last for at least 90 days.

The U.
S.
Energy Information Administration stressed that the assessment of the remaining crude oil production capacity does not include crude oil production due to unexpected shutdowns or interruptions, including sanctions, because oil producing countries are unable to autonomously enter the international oil market
.
Based on this limitation, the U.
S.
Energy Information Administration excluded Iran, Libya, Venezuela, and the currently suspended Russian crude oil production from the estimates of the world's
remaining crude oil production capacity.

Beginning in 2002, in its monthly publication of the Short-Term Energy Outlook (STEO), the U.
S.
Energy Information Administration assesses OPEC's crude oil production capacity and surplus crude oil production capacity
.
Currently, the U.
S.
Energy Information Administration's assessment of OPEC's crude oil production capacity and surplus crude oil production capacity dates back to 1970
.
In addition to OPEC, the U.
S.
Energy Information Administration also evaluates the crude oil production capacity of non-OPEC (non-OPEC) crude oil production capacity as well as the remaining crude oil production capacity, of which non-OPEC countries include two categories, namely non-OPEC oil producers and oil producers that were OPEC members in the past but have now withdrawn from OPEC
.

How to assess the global surplus crude oil production capacity, the U.
S.
Energy Information Administration has explained and explained
from the methodology.

For an assessment of OPEC's remaining crude oil production capacity, the U.
S.
Energy Information Administration noted that for a long time it used the concept of total total liquid oil production as a standardized basis for all data, because its OPEC oil production capacity data released before 2003 used the total production
of all liquid oil.
However, the data released by OPEC oil production capacity between 2003 and 2021 refers only to crude oil, excluding condensate production
.
Thus, for the sake of data consistency, the U.
S.
Energy Information Administration harmonized the data on total OPEC liquid oil production from 1970 to 2021, on the grounds that adding non-crude oil production to the data for OPEC crude oil production capacity from 2003 to 2021 would make it easy to derive the total production capacity
of OPEC liquid oil.

The U.
S.
Energy Information Administration believes that subtracting the total liquid oil production from the total production capacity of OPEC liquid oil in the revised way is OPEC's remaining oil production capacity
.
However, the U.
S.
Energy Information Administration found that this remaining oil production capacity is consistent with the remaining production capacity of crude oil, the reason is that the US Energy Information Administration does not attribute excess capacity to the capacity of other liquid oil, and the excess capacity is almost entirely from the OPEC/OPEC+ production reduction agreement, and OPEC/OPEC+ decided to reduce production only by crude oil production
.
Therefore, from the statistics, the U.
S.
Energy Information Administration directly defines OPEC's residual oil production capacity as the residual crude oil production capacity
.

For the assessment of the remaining production capacity of non-OPEC oil producing countries, the US Energy Information Administration pointed out that in general, only OPEC/OPEC+ countries have excess capacity, because non-OPEC oil producing countries usually carry out normal production
when market conditions permit.
If there is an interruption in a country's oil production, but the interrupted oil production capacity does not meet the definition of excess capacity, because the oil-producing country cannot resume oil
production as it wishes.
Of course, the U.
S.
Energy Information Administration has also found that, in some cases, non-OPEC producers voluntarily produce oil below oil production
levels.

The November 2016 OPEC+ agreement set production targets not only for most OPEC producers, but also for several partner countries
.
Under the OPEC+ production agreement, nine non-OPEC producers have worked with OPEC countries to reduce oil production since January 2017, and these targets have been continuously adjusted
at subsequent OPEC+ meetings.
Mexico has also agreed to voluntarily reduce oil production, but has not specified any formal production targets
.

The U.
S.
Energy Information Administration found that the United States had a small amount of excess oil production capacity
twice in the 1970s and 1980s.
The Texas Railroad Commission regulated oil production until March 1971, and between 1970 and 1971 Texas had 100,000 bpd to 215,000 bpd per day
.
In addition, after Saudi Arabia decided in 1985 to cease to be a floating oil producer, international oil prices fell sharply and some low-yielding wells in the United States were voluntarily shut down
.
Between 1985 and 1987, the United States had the ability to add 100,000 barrels of capacity
per day by re-enabling these shut low-production wells.

Currently, there are a certain number of unfinished wells in the United States, and these unfinished wells may increase the domestic oil supply in the United States in response to the rise in oil prices, but the U.
S.
Energy Information Administration does not count these unfinished wells into excess oil production capacity on the grounds that they do not have all the conditions
required to complete formal production.

Traditionally, non-OPEC oil producers produce by capacity, and by comparing pre-OPEC+ production levels with subsequent average production, the U.
S.
Energy Information Administration estimates the remaining oil production capacity
of non-OPEC producers from 2017 to 2020.

The history of global surplus crude oil production capacity and its relationship to international oil prices

The U.
S.
Energy Information Administration believes that although there are many factors affecting international oil prices, historically, the availability of surplus crude oil production capacity is closely related to the international oil market situation and changes in international oil prices, in part because OPEC members often stop or reduce crude oil production
during periods of low oil demand and falling prices.
International oil prices will also respond in a timely manner to surplus crude oil production capacity, and the international oil market is closely monitoring the availability of surplus capacity to meet supply shortages caused by market disruptions or to predict the growth of
global oil demand.

Global excess crude oil production capacity, which has changed over time, peaked at 11.
3 million bpd in 1985, the second year
Saudi Arabia officially ended its role as a floating producer at OPEC.
Between 1990 and 2015, the global excess crude oil production capacity was 5.
3 million barrels per day
.
In 2020 and 2021, global crude oil production capacity surpassed the previous 25-year peak due to the sharp reduction in global oil demand after the COVID-19 pandemic and the massive reduction in OPEC+ production
.

Of the excess crude oil production capacity of 7 million bpd in 2020, 1.
6 million bpd came from non-OPEC oil producing countries, most of which came from Russia
.
Prior to the OPEC+ cuts in 2017, the cuts in non-OPEC oil producers did not result in any significant excess
of crude oil production capacity.

OPEC crude oil production, an important factor affecting international oil prices, the organization proactively manages the oil production of its member countries by setting production
targets.
Historically, when OPEC lowered its production target, crude oil prices rose
.

OPEC member countries account for about 40%
of the world's crude oil production.
Equally important to global oil prices, OPEC's oil exports account for about 60%
of total international oil trade.
With such a large oil market share, OPEC's actions on oil production can and do affect international oil prices, and in particular, crude oil production in Saudi Arabia, OPEC's largest oil producer, often affects the direction
of international oil prices.

The extent to which OPEC members are using their existing capacity is often used as an indicator of the level of tension in the global oil market and as an indicator of the degree to which OPEC exerts upward influence on international oil prices
.
Saudi Arabia, OPEC's largest oil producer and the world's largest oil exporter, has historically had the largest surplus capacity, typically retaining an idle production capacity of 1.
5-2 million barrels per day for the management of the
international oil market.

OPEC's spare capacity is an indicator
of the ability of the international oil market to respond to a potential crisis that could reduce oil supply.
Therefore, when OPEC's spare capacity reaches a low level, international oil prices tend to be counted towards an escalating risk premium
.
From 2003 to 2008, OPEC's total idle production capacity remained close to or less than 2 million barrels per day (or less than 3% of global supply), providing little
cushion against supply fluctuations in the context of rapid demand growth.
In addition, the market is also affected by geopolitical events within and between OPEC countries, as these events have historically led to a decline in
oil production.
Given OPEC's important market position, international oil prices can fluctuate
wildly due to events that lead to actual or potential future losses in oil supplies.

Despite OPEC's efforts to manage oil production and strive to maintain the target international oil price level, member countries do not always adhere to the production targets adopted by the organization, and international oil prices may be affected by the reluctance of OPEC members to comply with production targets
.
In addition, unexpected shutdowns could reduce OPEC's oil production, and the extent of oil supply disruptions, the speed at which they occur, and the uncertainty of resuming production have a considerable impact on
international oil prices.

Natural gas fluids (NGLs) are not included in OPEC's production allocation, and the production of these liquids can provide a large additional amount
to the world's total liquid oil supply.

The trend of international oil prices depends not only on the current supply and demand relationship in the international oil market, but also on future supply and demand forecasts
.
Based on current and future supply and demand expectations for the international oil market, OPEC adjusts production targets
for member countries.
However, estimating future supply and demand is particularly challenging
in the context of uncertain and rapidly changing market conditions.
The timing of OPEC's adjustment of production targets based on market conditions could lag significantly, which could also affect international oil prices
.

The current state of global surplus crude oil production capacity

According to the U.
S.
Energy Information Administration, oil production in non-OPEC producers is expected to increase by 1.
9 million barrels per day in 2022, of which 60% will come from the United States
.
In 2022, the United States is expected to increase oil production by 1.
3 million barrels
per day.
In addition to the United States, Canada, Brazil, Norway and China will also increase oil production in 2022, and the increase in production in these countries can compensate for the decline in
Russian oil production.
Non-OPEC oil producers will produce 63.
9 million barrels per day in 2021 and are expected to be 65.
8 million barrels per day
in 2022.

The U.
S.
Energy Information Administration expects non-OPEC oil producers to have an 80 percent
drop in surplus crude oil production capacity compared to 2021.
In 2021, the remaining crude oil production capacity of non-OPEC oil producers will be 1.
4 million barrels per day, of which 60% will be located in Russia
.
As of May 2022, Russia's entire surplus crude oil production capacity has disappeared due to sanctions imposed by the Russian-Ukrainian war, while surplus crude oil production in other countries has also declined
significantly.
Thus, in May 2022, the remaining crude oil production capacity of non-OPEC oil producing countries will be only 280,000 barrels per day
.

In 2021, OPEC's remaining crude oil production capacity of 5.
4 million barrels per day will drop to only 3 million barrels per day
in May 2022.

Taken together, the U.
S.
Energy Information Administration believes that in May 2022, the world had only 3.
28 million barrels per day of surplus crude oil production, less than half
of the 2021 average.

More severe than the above data of the US Energy Information Administration is that, according to Reuters, at the Group of Seven summit held in the southern German town of Garmisch-Partenkirchen on June 27, 2022, French President Emmanuel Macron told US President Joe Biden that according to the information he received from the call with President Zayed of the United Arab Emirates, as the two major oil producers of OPEC, the United Arab Emirates has reached its maximum oil production capacity, and Saudi Arabia's remaining oil production capacity is only 150,000 barrels per day.
The two oil-producing countries have not been able to significantly increase oil production
in less than six months.
Therefore, public opinion believes that Macron's remarks show that the current spare capacity of the global oil market is close to exhaustion
.
Stimulated by Macron's remarks, international oil prices expanded their gains on the day, and both Brent and WTI weighed more than
$110 per barrel.