A New OPEC Plan Sparks a Global Race for Spare Capacity
The OPEC+ producers, meeting for their final gathering of the year, maintained their targeted production for early 2026, but made a crucial decision that will shape the future of oil production, investments, and prices.
The alliance introduced a novel mechanism to reassess the maximum sustainable production capacities of all its members, serving as the foundation for 2027 production quotas. This move, according to OPEC+ and Saudi Arabia, aims to enhance transparency and fairness in determining production levels from 2027 onwards.
The reassessment, conducted between January and September 2026, will establish baseline levels for 2027. OPEC+ plans to annually evaluate the maximum sustainable production capacity (MSC) of its members.
MSC is defined by OPEC as the average maximum crude oil production that can be achieved within 90 days and sustained for a year, including maintenance activities. A U.S.-based auditing firm will assess the MSC of 19 OPEC+ members, with sanctioned Russia and Venezuela using a non-U.S. firm. Iran's 2027 baseline will be determined by the average of its production in August, September, and October 2026, as assessed by OPEC secondary sources.
This new mechanism is a response to recent disputes over quota assignments among OPEC+ members. For instance, major producers like Iraq, the UAE, and Kuwait plan to increase their oil production capacity, arguing for higher baseline production levels as they expand. The UAE has already secured a higher baseline for 2025 and 2026.
Former OPEC member Angola, which quit in January 2024 due to disagreements over production quotas, is another disgruntled producer. At a mid-2023 meeting, Angola and Nigeria were given lower crude oil production quotas due to underperformance and lack of investment in new fields.
The new mechanism is seen as a turning point in OPEC+ policy, according to Saudi Energy Minister Prince Abdulaziz bin Salman. It provides a detailed and transparent approach to managing the market and production. Saudi Arabia and other major Gulf producers stand to benefit, as the mechanism incentivizes maintaining high capacity levels or boosting production.
Despite its renewable energy projects, Saudi Arabia maintains a 12 million barrels per day (bpd) production capacity with a spare capacity of about 2 million bpd. The UAE aims to increase its production capacity to 5 million bpd by 2027, currently at 4.8 million bpd. Iraq, OPEC's second-largest producer, plans to boost capacity to over 6 million bpd by 2029, potentially reaching 7 million bpd within five years.
The race to invest in additional capacity began among Gulf oil producers with low-cost production and oil-dependent economies. Despite recent reductions in upstream investment globally, these producers have continued to invest in oil production capacity, calling for a reduction in oil and gas spending.
The new quota mechanism will not only benefit OPEC+ producers with higher capacity but also enhance OPEC's long-term capacity to influence the oil market and regain market share lost to the Americas' booming output. This move underscores the ongoing global race for spare capacity in the oil industry.
