THE DAILY TELEGRAPH: Those exhorting OPEC to boost output should be careful what they wish for. The cartel card can be played once only, and it risks exposing the fragility of the global energy system if the Gulf powers are seen struggling to deliver.
Goldman Sachs suspects that OPEC has been pumping far above its agreed quota since November and therefore cannot easily raise output much without cutting deep into global spare capacity.
Jeff Currie, the bank's oil guru, said Saudi output had quietly crept up by 700,000 barrels a day (bpd) even before the Libyan supply shock.
Assumptions that OPEC has added 1.9m bpd over the last two years are wishful thinking. These new fields have been "largely offset" by attrition in old fields.
"We believe that OPEC spare capacity has already dropped below 2m bpd. The question therefore arises how much spare capacity is left to absorb potential supply disruptions in other countries," he said.
If this picture is broadly correct, spare capacity is already close to the wafer-thin levels that led to wild price moves in mid-2008.
The flow of Libyan oil has so far fallen by 1m bpd. This may not sound much against global supply of 88m, but oil prices are determined by levels of spare capacity once supply tightens.
Beyond a certain point, the price spiral can kick in with explosive force until the economic damage crushes demand.
Libya's conflict has already cut spare capacity by a third. Hopes for a quick solution are fading as the country succumbs to civil war along ancient lines of tribal cleavage. A raft of new projects planned for the Sirte Basin by mid-decade will be mothballed. >>> Ambrose Evans-Pritchard, International Business Editor | Tuesday, March 08, 2011