The US and OPEC appear to be talking past each other when it comes to the producer bloc’s spare output capacity.  The two sides don’t agree on the definition of the term, let alone how much spare capacity OPEC even has available.  The public spat has heightened fears in the market of whether OPEC is willing – or able – to fill the supply gap anticipated from US sanctions on Iran and Venezuela’s ongoing crisis, causing oil prices to spike to four-year highs in recent days. Even if OPEC were to pump as max volume, as US President Donald Trump has urged, it would not be able to respond to any future disruptions, raising the risk of an even more dramatic surge in prices.

“I think we have a big risk premium coming in that we’re going to run out of spare capacity amidst considerable geopolitical disruption risk,” said Bob McNally, a veteran OPEC watcher who heads the consultancy Rapidan Energy Group, during an Atlantic Council event Thursday. “When we get this tight, the market wants to be assured that you’ve got cash in the bank, if you will.”  On Wednesday, the US State Department accused OPEC of contributing to high oil prices by holding back 1.42 million b/d of spare capacity from the world market.  A week earlier, while laying out his argument against a release from the US Strategic Petroleum Reserve, Energy Secretary Rick Perry said there was still spare capacity available throughout the world, including new oil output in the Neutral Zone between Saudi Arabia and Kuwait.