OPEC does appear to be starting to acknowledge...that every incremental barrel of oil produced above current output could be lower-quality, heavy oil. This past winter, when the Saudis brought more oil to market, it consisted of a heavier crude that has a very limited market due to refining constraints. It is likely that at least some of any additional production OPEC could bring quickly to market would be heavier oil that is difficult to refine.
OPEC noted in this meeting the refining bottlenecks that exist even with lighter, sweet oil. In fact, some OPEC members suggested that it was the refining bottleneck that's pushing price higher, not the lack of overall oil supply. While that may be partly true, one could argue that a lack of refining capacity would lead to more stranded oil on the market and the price of oil should decline. However, the price continues to move, likely a sign of fear that even with more oil available, it won't be enough to meet product demand -- primarily gasoline and heating oil -- in the coming months.
OPEC clearly recognizes its challenge. In a report Friday, OPEC estimates it will have to produce 29.1 million barrels a day in the third quarter, 200,000 a day more than forecast last month. Moreover, in the fourth quarter, OPEC believes it will need to produce 30.6 million barrels a day, also up nearly 100,000 barrels from its estimate last month.
Given that many members of the cartel have openly admitted that they are producing at or near capacity, the ability to squeeze the extra barrels appears limited. In addition, non-OPEC producers like Norway and Mexico suggested this week that there's little they can do to help put the kibosh on higher oil prices.
That leaves the problem -- whatever it is -- in the hands of OPEC.
And, regardless of the real problem, the oil supply and refining conundrums clearly have OPEC over a barrel.
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