OPEC+ will consider the option of a larger supply increase when key members meet today after the US and Israel launched an attack on Iran, according to two delegates, reports Bloomberg.
The group led by Saudi Arabia and Russia was expected to resume modest production increases in April after a three-month supply freeze in an ongoing strategy to reclaim market share, several delegates said earlier this week.
Their base-case was to raise by 137,000 barrels a day, in line with increments during the fourth quarter, three people said. A key factor in today’s decision will be whether the shock US-Israel assault on Iran results in a closure of the Persian Gulf’s critical Strait of Hormuz, said another. The delegates asked not to be identified as the deliberations are private.
Yesterday’s attacks, and Tehran’s retaliation, mark the culmination of a geopolitical crisis that has pushed up crude prices this year despite widespread expectations of a surplus. Futures rose to a seven-month high of $73 a barrel in London on Friday, having climbed 19 per cent this year amid an array of output disruptions, sanctions and Chinese stockpiling.
Saudi Arabia, along with some other producers, already accelerated oil exports in recent days as America’s deployment of military assets to the Middle East fuelled tensions in the region.
Last year, Riyadh temporarily ramped up supplies during a previous US strike on Iranian nuclear facilities.
Saudi Arabia holds the bulk of the world’s spare oil production capacity, able to muster an additional 1.8 million barrels a day, according to the International Energy Agency. The UAE has a contingency plan to deploy at least 1m barrels a day, a delegate said.
The Organisation of the Petroleum Exporting Countries and its allies have often adopted a cautious policy in the face of geopolitical events, opting to see whether they have a material impact before acting.
“The market was priced on the basis of a ‘glut’ that is beginning to appear to be mostly fiction,” said Jeff Currie, chief strategy officer of energy pathways at Carlyle Group Inc. “There is no room for error, which means a lot of room to rally.”
While global supplies are exceeding demand, a range of disruptions from North America to Kazakhstan and Russia has tempered the excess. Much of the overhang consists of either sanctioned barrels from Russia or Iran – which are unavailable to the general market – or else is being scooped up by China for strategic reserves.
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