OPEC and its allies undeniably play a crucial role in shaping the oil balance and, consequently, the mood of the market. Higher output levels from the alliance tend to contribute to rising global stocks. Given the close inverse relationship between oil inventories and prices, this usually exerts downward pressure on the latter. The opposite is equally true: When production is reduced, the odds of depleting stockpiles increase, which is generally deemed price-supportive.

Recent developments, nonetheless, have forced oil market participants to reevaluate this relationship. Since 2020 – when the COVID-19 health crisis broke out, followed by the Russian-Ukrainian war and the capricious policymaking of the second Trump administration – uncertainty and unpredictability have hung over financial markets, including oil. Geopolitical tensions can lead to unforeseen supply shocks, while potential trade wars make estimating global oil demand an arduous task.

In this environment, a reliable source of potential extra barrels is pivotal, and the only group able to provide additional supply is OPEC – or, more precisely, the Persian Gulf OPEC members – in the form of spare capacity. Spare capacity, as defined by the Energy Information Administration (EIA), is the volume of production that can be brought online within 30 days and sustained for a minimum period of 90 days.

Because of the volatile market conditions described above, investors have been forced to place greater emphasis on available spare capacity than before 2020. This shift is evident: There is a discernible negative correlation developing between the producers’ group’s supply cushion and the price of crude oil, in this case WTI, as displayed in the chart above. In the latter half of 2020, a rise above 6 mbpd in OPEC’s spare capacity contributed to WTI plunging below $40/bbl. Fast-forward two years, and the drop below 2 mbpd helped the U.S. benchmark climb above $100/bbl.

Absolute global and OECD stock levels remain undeniably integral parts of any oil equation. Yet, in unsettled times, certainty becomes a precious commodity, and spare capacity is increasingly viewed as a necessary shock absorber should the unforeseen occur. OPEC’s latest decision to hasten the unwinding of supply constraints has inevitably reduced the group’s mobilisable production capacity, which the EIA estimates to have fallen from 4.6 mbpd at the beginning of this year to 3.5 mbpd by year end. It is expected to remain comparatively low in 2026, with an investment bank forecasting a decline to 2 mbpd.

Spare capacity must not be used as the exclusive tool for predicting future oil balance. Nevertheless, it remains a reliable indicator of the market’s ability to respond to sudden supply disruptions. And when the future is as ambiguous as it is today, a diminishing supply cushion grows in relevance and goes a long way toward putting a floor under falling prices.