As they strain to restore oil production, OPEC and its allies are being left with a diminishing buffer of spare supplies -- potentially setting up crude prices for a sizzling summer.
With depressed investment and internal unrest hobbling coalition members from Nigeria to Russia, the task of satisfying the vigorous recovery in world fuel consumption is down to just a few Middle Eastern producers. As they raise production, the buffer of untapped supplies held back to cover any emergency disruptions will grow ever-more precarious.
“The oil market appears to be heading for a period with little margin of safety,” said Martijn Rats, oil strategist at Morgan Stanley. “Prices will need to rise to levels where some demand erosion takes place.”
By the time the holiday driving season propels global fuel use above 100 million barrels a day in July, the world’s reserve capacity will be almost entirely held in Saudi Arabia, the United Arab Emirates and Iraq, and could amount to just 2.3 million a day -- the lowest since 2018.
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