Reuters: Rising OPEC output has cut the group's spare capacity and left the oil market vulnerable to any surprise supply disruptions, Iran's OPEC governor said on Sunday.
By Hashem Kalantari
TEHRAN (Reuters) – Rising OPEC output has cut the group's spare capacity and left the oil market vulnerable to any surprise supply disruptions, Iran's OPEC governor said on Sunday.
The Organization of the Petroleum Exporting Countries (OPEC) pumped more oil for the third consecutive month in July, helping to bring prices down $30 from a peak above $147 a barrel to a three-month low on Friday.
Rising OPEC output has coincided with a fall in demand from top energy consumer the United States, hit by an ailing economy and soaring pump prices.
"The drop in oil price has come at the expense of supply security," Iran's OPEC Governor Muhammad Ali Khatibi told Reuters by telephone.
Consuming countries benefiting from the price fall should be aware that it could easily be reversed by any surprise supply outages, he said.
"The drop in prices works in favor of consumers," Khatibi said. "But on the other hand, any drop in market security in the form of spare capacity is highly detrimental to consumers. We need excess capacity to guarantee supply security."
OPEC, source of over a third of the world's oil, had around 1.5 million barrels per day (bpd) of spare capacity to meet any disruptions, he said.
The dispute between Iran and the West over Tehran's nuclear programme has been the main focus of supply concern in oil markets as investors fear any conflict could threaten Iran's around 2.5 million bpd of exports. Iran is the world's fourth-largest exporter.
OPEC's Secretary General Abdullah al-Badri said in July it would be impossible to replace Iran's oil output in the case of disruption due to an attack.
Top oil exporter Saudi Arabia is the holder of most of the world's spare capacity. The kingdom pumped at the fastest rate for 27 years in July, boosting production without making any formal agreement with other OPEC members to boost the group's supply target.
Saudi output hit 9.7 million barrels per day (bpd), while its capacity stood at 11.3 million bpd.
Saudi Arabia has a long-held policy of keeping between 1.5 million bpd and 2 million bpd as a supply cushion.
Record fuel prices sparked protests worldwide this year and led to pressure from consuming countries on producers to boost output.
Khatibi said last week that the oil market was oversupplied by around 1.3 million bpd, but that a seasonal increase in global demand during the northern hemisphere winter should absorb the extra barrels.
(Writing by Simon Webb, editing by Jason Neely)