With Crude oil production by Organisation of Petroleum Exporting Countries (OPEC) averaging 29.98 mn barrels, very close to 30 mn barrels set by OPEC, it is very likely that targets may not be reset during the June 11 OPEC meet.Barclays observed that there is a change relative to 2013 when the group produced an average 0.39 mn barrels per day above its target and 2012 when the excess above target was 1.38 mn barrels per day.

However, for adjusting production higher, there are a few obvious candidates, in terms of spare capacity holders (Saudi: 2.7 mb/d, UAE: 0.21 mb/d, Kuwait: 0.09 mb/d (IEA estimates)), and there is not a scarcity of volunteers available in tapping this spare capacity if required. In fact, the Saudi oil minister stated this week that they are willing to supply the market with extra crude should there be a Ukraine-related oil shortage. Vitally, these comments come
only months before the kingdom’s own summer crude burn demand requirements restrict its export availability, Barclays observed.

The bold resolve from these spare capacity holders to meet upside requirements often vanishes when the prospect of accommodating other members and losing market share is discussed. This week, the Saudi oil minister was asked (as per Reuters reports) about whether the kingdom planned to cut production to accommodate rising output from other producers. To which he responded: "People like our oil - why reduce?”

Libya, Iraq, Iran and Nigeria are at the core of unplanned outages, having between them lost 2.5 mb/d.And while the return of this output remains highly uncertain, and the call on OPEC is stronger in the second half of the year, it does not insulate the group from facing the challenge of internally managing its output. On balance though the level of outages could likely improve over the next year, possibly increasing pressure for an OPEC collective cut, the underlying geopolitical factors, including sanctions in Iran, high levels of violence in Iraq, and dearth of governance in Libya are not going away any time soon. If their respective output restraining issues are even partially cleared, there is a high likelihood that the group’s target of 30 mb/d is likely be overlooked by them as they race to maximize their individual outputs.

"In our view, for the rest of the year, this scenario of internal output management has the biggest potential to test OPEC members’ resolve and the group’s output ceiling. The method with which members discuss this openly and show resolve will also provide a good litmus test for how the group will together deal with accommodating non-OPEC supply growth in the coming years."
Source: Barclays