As OPEC+ ministers met on Sunday to weigh higher production quotas in a bid to cap surging oil prices since the beginning of the Iran war which has effectively choked off Gulf crude shipments, analysts still believe no change should be expected on the international market.
Analysts believe that even if the cartel members vow to increase output by thousands of barrels per day, geopolitical realities mean they probably won’t change the current prices. With the crucial Strait of Hormuz shut since US and Israeli attacks on Iran in late February, oil prices have nearly doubled, igniting inflation pressures worldwide.
Ministers from the 21 member-states of OPEC+, the main oil producing nations and their allies, held their quarterly meeting online on Sunday. T hough no outcome has yet been announced, AFP reported that the group would likely “There is very little OPEC can agree to beef up its production quotas by ‘188,000 barrels a day,’ quoting analyst at Rystad Energy, Jorge Leon who posited that such move is still not different from recent increases.
The report points at only seven member-states — Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria and Oman — have the capacity to effect such resolution. Tehran’s threats of retaliatory attacks to US and Israeli strikes have virtually blocked the vital Strait of Hormuz, through which roughly a fifth of global oil and gas supplies normally pass.
That is equivalent to about 20 million barrels a day. But with key Gulf producers shut out of the global market, pledges to raise output in a bid to ease spiralling prices are unlikely to sway traders. “Any announced production increases or changes to output targets will have limited practical value. do,” a commodities analyst at Saxo Bank, Ole Hansen, told AFP.
OPEC+ itself says daily production has plummeted to just 33 million barrels a day as tankers remain stuck, compared to nearly 43 million before the conflict. A US blockade on Iranian ports means “it will be even less than that” in reality, said Homayoun Falakshahi, head of crude oil analysis at data firm Kpler.
The United Arab Emirates’ recent decision to quit OPEC further saps away at the cartel’s influence, given its huge excess production capacity. And Abu Dhabi has made clear it wants to boost output. “They don’t want to be dictated to, they want to maximise their revenues,” said Lawrence Haar, a lecturer in finance at the University of Brighton in England.
And the cartel risks seeing other countries follow the UAE’s example. “If Iraq were to leave, it could mark the end of OPEC+,” Falakshahi said. Saudi Arabia, by far the cartel’s most influential member, “is going to do what it takes to stop anyone else from leaving,” Falakshahi predicted.
That could translate into more flexible output quotas or decreased penalties for any excess production. But “for now, the compensation framework has effectively become irrelevant due to widespread production shut-ins,” Hansen said.
As a result, the Iran war has largely neutralised the cartel’s stated mission “to secure an efficient, economic and regular supply of petroleum to consumers, and a steady income to producers.”
For Falakshahi, the only factor limiting further oil price spikes at the moment is China, “which is buying less oil than normal” by tapping into its vast strategic reserves.
