An important element in the world oil market is “spare capacity.” This is production capacity—that is, oil wells—that are not actually in operation, but can be swiftly brought on line if prices spike or if a disruption knocks out supply elsewhere. Today, most of the world’s spare capacity is in Saudi Arabia, with some in the United Arab Emirates and Kuwait. That, combined with the size of its oil reserves and its ability to quickly increase or decrease output, makes Saudi Arabia the balancer in the world market. Sometimes it is described as the “central bank” of world oil.
