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OPEC Spare Capacity Drops, But Now Prices Fall

Source: Energy Information Agency, US DOE
In the first quarter of 2012 the spare capacity for producing oil fell to 2.4 million barrels a day, or three percent of world consumption. However, recently falling oil prices may change the situation for the second quarter.

The U.S. Department of Energy reported that OPEC spare capacity was at the lowest level of consumption since 2008. As oil topped $120 a barrel that year, producers pumped more into the market in response to the high price.

As the chart to the right shows, as prices plummeted with the world economy in late 2008 and early 2009, spare capacity, in absolute terms, tripled and then quadrupled before beginning to descend to its present level. But as oil prices rose again to the $100-plus level OPEC racheted up production again, causing spare capacity to dwindle.

However, in in May US oil contracts fell below $100. In the last four weeks petroleum products supplied totaled 18.7 million barrels a day, up 1.2 percent from the same period in 2011, reported DOE. But the report said there were small decreases in refinery inputs, gasoline distillation and oil import in the week ending May 18. The effect at the pump can be monitored at our gasoline price page.