Oil market faces rocky road as shock absorbers wear thin

Oil market faces rocky road as shock absorbers wear thin

LONDON- An increase in oil output by producer nations cashing in on expensive crude has depleted the cushion of spare capacity that protects the market from sudden shocks and raised the risk of price spikes or even fuel shortages.

Some analysts have said that by the middle of the year unused capacity could be as depleted as in 2008 when international oil futures hit their all-time record above $147 a barrel.

Typically, the biggest producers, including Saudi Arabia and the United Arab Emirates, have capacity that they can draw on relatively quickly to add extra oil and calm price volatility should war or a natural disaster cause a sudden drop in supply.

Without that flexibility, consumers could be exposed to price shocks and fuel shortages.

Last week, the International Energy Agency said spare capacity could fall by half to 2.6 million barrels per day (bpd) in the second half of the year.

"If demand continues to grow strongly or supply disappoints, the low level of stocks and shrinking spare capacity mean that oil markets could be in for another volatile year in 2022," the IEA said.

The agency defines spare capacity as production that can be tapped within 90 days and sustained for an extended period,