Lack of Spare OPEC Capacity Could Lead to Price Spike

OPEC+’s spare capacity will be dwindling as it keeps bringing oil back into the market, even as total capacity for the group as a whole is growing.

That’s what Ed Morse, Senior Adviser and Commodities Strategist at Hartree Partners, and previously the Global Head of Commodity Research at Citi Group, told Rigzone in an exclusive interview recently.

Morse also highlighted a couple of issues with this spare capacity in the interview.

“One main issue is the definition,” he said.

“Is it oil that can be brought to market in one month, three months or six months? And is it a production level that can be sustained for a while – and is that ‘while’ six months, 12 months or even longer,” he added.

“And then there is the issue of the domestic and international political risks to deliverable capacity,” Morse continued.

Morse went on to tell Rigzone in the interview that some have spare OPEC+ capacity “at a fairly robust level”. The Hartree Partners strategist noted that, “from a definition of what can be brought to market in a four to six week period of time”, his own judgment is that OPEC+ capacity is about 2.75 million barrels per day.

“Given what could happen in Russia and Iran alone, that isn’t a lot of oil to calm the market,” Morse warned.

So, what does that mean for the oil market?

Responding to this question, Morse told Rigzone that oil market consequences depend on when a disruption to supply would take place. 

“The current market is physically range bound and weakening, with OPEC+ producers exporting around two million barrels per day more now than in mid-summer given the tangible and actual increases in the group’s production and the end of summer burn for power generation,” he said.

“It remains backwardated but time spreads are significantly weaker than they were in June. What’s more given actual seasonal demand post summer and a significant level of refinery maintenance, inventories are growing,” he added.

“Nonetheless, a large supply disruption that results in a sustainable price spike and a strengthening of backwardation could bring some two million barrels per day back to market and then there is the question of what next,” Morse warned. 

“One big question mark relates to Saudi Arabia – will the Kingdom’s ruler decide that a disruption would provide a good opportunity to return to a preferable level of market share and domestic production and exports of both crude and product,” Morse continued.  

The Hartree Partners strategist went on to state that “there are strong indications of frustration in that country over taking what were essentially voluntary actions to support prices only to see some of its OPEC+ partners taking advantage of a free ride on the Saudi cuts”. 

Morse highlighted in the interview that a lack of spare OPEC+ capacity could potentially lead to an oil price spike but said this would “probably not [be] on a sustainable basis”.

“A price spike based on a disruption of production in a set of countries at the same time would likely not last long and the world could settle in the same kind of narrow $5 trading range that now exists,” he told Rigzone.

Morse also noted that “the demand situation cannot be disregarded in trying to assess this”. 

“Global GDP is looking a bit more robust than it appeared to be a couple of months ago … but no one should expect any rebound in demand in China or any of the advanced economies that is meaningful,” he added.

“The rest of the world doesn’t look like it could see enough demand growth for oil products to be at more than a one million barrel per day level at best,” Morse continued.

“That level can be more than adequately supplied by non-OPEC+ countries alone, let alone with a boost in production from the Gulf countries alone,” he went on to state.

Morse also told Rigzone that any sustainable higher level of prices “would see what is now seen as an unexpected increase in U.S. production”.

“If Brent were to rise to over $80 and stay at that level for two months, there is a significant probability that U.S. production, currently by consensus likely to be flat in 2026 vs. 2025, would almost certainly see a rise in the range of 400-to-500,000 barrels per day, which would also be enough to keep traders more comfortable in a lower range than reached by an initial spike,” he added.

Morse pointed out to Rigzone that the U.S. has its own form of spare capacity in the U.S. Strategic Petroleum Reserve (SPR), but added that is not the only country with spare capacity built into its SPR.

“China is even more important than the U.S. when it comes to managing its SPR,” Morse said.

“A price spike would almost certainly lead China to stop its robust level of stockpiling – in the last two years the level of growth in its inventories has been between 600,000 barrels per day and 1.1 million barrels per day,” he added.

“What’s more, in China, all inventory is large controlled by the state, whether officially public or private,” he pointed out.

When asked if he thought the Trump administration is likely to use the SPR as a form of spare capacity, Morse told Rigzone there is no reason to doubt that the Trump administration would do what it can to keep gasoline prices at reasonable levels in the United States.

“This is even more so the case in the period leading up to the 2026 mid-term elections,” he said.

“One issue is whether the Trump administration would go further than that when it comes to assuring higher international flows,” Morse added.

“The fact that the administration negotiated a security agreement with Qatar after the Israeli bombing in Doha committing the U.S. to come to its defense raises the question of whether it would consider doing the same with other countries in the Middle East,” Morse continued. 

Rigzone has contacted OPEC, Saudi Arabia’s Ministry of Foreign Affairs, the White House, the American Petroleum Institute (API), the State Council the People’s Republic of China, and the International Press Center of China’s Ministry of Foreign Affairs for comment on Morse’s statement. At the time of writing, none of the above have responded to Rigzone.

In a separate exclusive interview, Jamie Webster, Partner and Associate Director at Boston Consulting Group’s (BCG) Center for Energy Impact, told Rigzone that OPEC+ spare capacity is “certainly” dwindling but added that “some spare capacity” still remains. 

Exploring what that means for the oil market, Webster said “at this point it is a minor factor given all the other issues in the oil market” but added that it is “one worth watching as a medium-term risk”.

Webster went on to note that a lack of spare capacity on its own does not cause an oil price spike but pointed out that, “as we get closer to low spare capacity, market watchers are well aware that the remaining barrels are often of less use to the market given they are heavy sour”.

“And there is the dynamic that as you use the spare capacity for what it is intended, the market gets concerned that less is now available for future shocks,” he added.

Webster went on to tell Rigzone in the interview that there is “much debate on if stocks are real spare capacity, as they can add substantial volumes into the market but their ability to accommodate sustained flows is limited to not possible”.

“As such, SPR is not real spare capacity, but can be a potent short term pricing tool if used effectively – and if the barrels (or the capacity, if filling) is available,” he said.

In another exclusive interview, Diana Furchtgott-Roth, Director, Center for Energy, Climate, and Environment at The Heritage Foundation, told Rigzone that OPEC+ has “plenty of capacity”.

“Prices will move lower with increased production, but additional capacity exists,” Furchtgott-Roth said. 

Furchtgott-Roth also told Rigzone that the U.S. does not have a lack of capacity, adding that the country “has spare capacity with its vast resources and its new focus on energy dominance and increased production”. The Heritage Foundation representative added that “this dwarfs the SPR”. 

“The Trump administration may refill the SPR, but there is an elastic supply in the United States from all the new production and the SPR is not needed at this time,” Furchtgott-Roth told Rigzone.

Rigzone has contacted OPEC for comment on Webster and Furchtgott-Roth’s statements. Rigzone has also contacted the White House for comment on Furchtgott-Roth’s statement. At the time of writing, neither have responded to Rigzone.

To contact the author, email andreas.exarheas@rigzone.com