 Jeff Currie, head of commodities at Goldman Sachs, has told the Reuters news agency that Saudi Arabia’s cushion of spare oil capacity will shrink to almost nothing if the kingdom quickly ramps up to 10 million barrels per day (bpd).
Last week the kingdom said it would unilaterally produce as much oil as the market needed after the Organization of the Petroleum Exporting Countries failed to reach agreement as a whole on output policy.
Saudi newspaper al-Hayat reported Saudi Arabia would boost output to 10 million bpd in July, which Currie said would leave only 500,000 bpd spare.
Concerns are growing over the kingdom’s ability to pump more oil beyond an anticipated summer boost, leaving the world exposed to any further unexpected disruptions.
“If you get up to (10 mln bpd) you start to really create a very tight market relative to spare capacity,” he told the Reuters Global Energy and Climate Summit.
But the question that’s more appropriate is when do you get to 9.5, when do you get to 10? Because when you start to look out over the horizon, their ability to create more flexibility in spare capacity increases tremendously.”
Extra output from Saudi Arabia would reflect increased refinery demand, Currie told Reuters.
“When you look at OPEC production, it’s highly correlated to refinery runs in the key consuming regions.
“The ramp up in refining runs over the next six months will be very significant.”
Currie remained bullish on all the components of what he referred to as the “CCCP group” of commodities — crude, copper, corn and soy beans and platinum — because investment in them is subject to political and other constraints.
But the simple commodities story of the very end of the last century when the complex was driven by “decades of under-investment” had changed as high prices spurred investment.
“Is the world a different place? Absolutely yes. It’s no longer a structural bull market.”
