Since 2002, we have published our estimates of OPEC production capacity and excess capacity in our Short Term Energy Outlook (STEO). This data series is a useful indicator of tensions in the global oil market. The large excess production capacity figures suggest that OPEC has restricted crude oil production in the past to avoid oversupplying markets, which would lead to a large build-up of inventories and lower prices.
We now extend our annual estimates of excess crude oil capacity for current members of OPEC to 1970, and we have also added estimates for non-OPEC countries (including former members of the OPEC as well as non-OPEC countries). This extended data set provides historical context for analyzing current market conditions.
The new annual excess capacity data series is based almost entirely on EIA data, including our production data from International Energy Statistics (IES), STEO, and our International Energy Outlook (IEO) and uses a consistent definition of capacity throughout the time series (effective production capacity).
Summary of Findings
Although many factors affect oil prices, the availability of excess capacity has historically been linked to tight oil markets and changes in world oil prices, in part because OPEC producers tend to hold back crude oil production during periods of low demand and when prices fall. Oil prices are also reacting to perceived low levels of excess production capacity. The oil market closely monitors the availability of excess production capacity to meet supply shortages due to oil market disruptions or projected increases in global oil demand.
|Region name||Average surplus (million barrels per day)||As a percentage of world oil demand|
|Data source: US Energy Information Administration (EIA) Short term energy outlook, International Energy Outlookand International Energy Statistics Database
Note: The EIA does not have estimates of world oil demand prior to 1973.
Excess capacity has fluctuated over time and peaked at over 11.3 million b/d in 1985, the year after Saudi Arabia officially ended its role as a surge producer for the OPEC.
Excess capacity between 1990 and 2015 peaked at 5.3 million bpd. It was not until 2020 and 2021 that excess capacity surpassed the previous 25-year peak, which was the result of both reduced oil demand following the global outbreak of the COVID pandemic -19 and OPEC+ production cuts.
Of the 7.0 million b/d of excess capacity in 2020, 1.6 million b/d came from non-OPEC partners, the majority of which came from Russia.
Production cuts by non-OPEC countries prior to OPEC+ cuts from 2017 did not result in significant excess production capacity.
Excess production capacity estimates for OPEC countries
The excess capacity data series is based almost entirely on existing EIA data on world oil production and production capacity.
Although non-EIA datasets exist for some of the years in this time period, using our existing datasets was advantageous because:
- We have collected data from these series, which means that they have consistent definitions.
- These data are official EIA estimates.
- We had already released much of the data.
We first normalized all the data we used in our calculations on a consistent basis using total petroleum liquids. We have normalized the data series because our published production capacity data prior to 2003 included total petroleum liquids, but the production capacity data from 2003 to 2021 published in STEO was for crude oil only and excluded petroleum liquids. condensates. For consistency, we have calculated a uniform capacity series from 1970 to 2021 for total petroleum liquids. We used this approach because it was simple to add non-petroleum liquids production to crude oil capacity data 2003-2021 to derive total petroleum liquids capacity rather than excluding it from crude oil estimates.
We estimated excess production capacity by subtracting total petroleum liquids production from the revised petroleum liquids production capacity series. This excess capacity series is consistent with the crude oil excess capacity series, as we do not attribute any excess capacity to other petroleum liquids. Excess capacity came almost exclusively from OPEC/OPEC+ production deals which resulted in cuts in crude oil production only.
Our estimates of excess crude oil production capacity do not include oil volumes that are offline due to unplanned outages and disruptions, including sanctions, as these volumes cannot be voluntarily brought back.
Our petroleum liquids production data serves as an important consistency check for official or published capacity estimates. Over the years, we have revised IES production estimates and in some cases have exceeded original production capacity estimates. Additionally, production estimates serve as a guide to resolve inconsistencies in capacity data. For example, increases or decreases in production should generally follow the series movements on production capacity, unless external factors such as interruptions in production or changes in OPEC production targets be present.
Estimates of excess production capacity for non-OPEC countries
Generally, only OPEC/OPEC+ countries hold excess production capacity as other non-OPEC countries usually produce as much as market conditions allow. If a country’s production is disrupted, the disrupted capacity does not meet the definition of excess production capacity because the producing country cannot bring that production back at will. However, on a few occasions, non-OPEC producers have intentionally produced below capacity levels.
The OPEC+ agreement of November 2016 set production targets not only for most OPEC producers, but also for several partner countries. Beginning in January 2017, nine non-OPEC producers joined OPEC countries in cutting production under this OPEC+ production agreement. These targets were adjusted at subsequent OPEC+ meetings. Mexico has also agreed to voluntarily cut production, but OPEC has not assigned it formal production targets.
Twice during the 1970s and 1980s, the United States held small amounts of excess generating capacity. Texas held excess capacity of 100,000 bpd to 215,000 bpd in 1970-71 because the Texas Railroad Commission regulated production volumes until March 1971. Additionally, American stripping pits would have been shut down voluntarily after the sharp drop in oil prices following Saudi Arabia’s decision. to cease acting as an alternative producer in 1985. The IEO tables include non-OPEC production and capacity, and the IEOs for 1985-1987 note that the United States had the capacity to increase capacity by 100,000 b / d by reopening these wells, which is no longer the case. The United States has a number of Drilled But Uncompleted (DUC) wells that could affect the size and timing of a domestic supply response to a rise in oil prices, but these are not counted as excess capacity because they were never completed.
Since non-OPEC countries traditionally produce at full capacity, we estimated their excess capacity for 2017-2020 by comparing production levels before the OPEC+ deal with subsequent production averages. Our analysts then reviewed these excess capacity estimates to look for other factors that may have affected capacity and production, such as disruptions. These analysts have produced the excess capacity estimates for 2021.