Current high prices can be largely attributed to extremely low spare production capacity. As demand has risen strongly, Non-OPEC supplies have not been able to keep up, while OPEC has finally seen most of the spare capacity it built in the 1970s absorbed by the market. Low spare capacity leaves the world vulnerable to supply disruptions and increases both price volatility and upside price ceilings. This is an unusual situation for the global oil market which has almost always had to face the opposite problem - managing a surplus of supply - but it means that OPEC is now in a powerful position to guide prices in the medium to long term.

PFC Energy believes that OPEC will maintain only low spare capacity in the future in an effort to keep the world dependent upon oil far into the future. Too much spare capacity will keep prices low and demand growth strong while Non-OPEC supply growth slows due to a dearth of reserves. This would eventually result in a supply-demand gap which even OPEC could not fill fast enough and could prompt a crash global effort to find a replacement for oil. Conversely, allowing the world to run out of spare capacity now would have a similar result much sooner. In both cases, the world would cease to rely on oil and OPEC would be left with a devalued resource in the ground. The organization will instead try to steer between the two extremes, building new capacity, but keeping spare capacity low. This is a delicate balancing act, but if successful it would allow prices to go high enough to spur conservation and unconventional oil development, leaving the world dependent on levels of OPEC capacity which the organization can successfully develop.