WSJ.
Surging demand (particularly from China) has hit the world's oil
production capacity limits. This makes oil prices more volatile and
responsive to GG attacks. “It's a tight window of vulnerability”
in the third quarter, says Ann-Louise Hittle, an analyst in Boston for
Wood Mackenzie. Oil producers outside OPEC typically produce at maximum
capacity, leaving the cartel as the last resort to meet world demand in
a pinch. Wood Mackenzie estimates that OPEC, excluding erratic Iraq,
only has about 800,000 barrels a day of idle capacity in the current
quarter. In its latest monthly report on oil markets, released
yesterday, the IEA reckoned that OPEC effectively has only 620,000
barrels a day of idle pumping capacity, after cartel members opened
their taps wide last month. Nonetheless, the IEA warned
against “too alarmist a response” to its figures, because in a real
supply crunch, Saudi Arabia, the United Arab Emirates and others
temporarily could raise output beyond normal capacity levels by “surging” their output. So-called surge capacity can be used for short periods, until the high flows threatened to damage oil reservoirs and facilities designed to handle lower volumes. [John Robb's Weblog]