Opec+has agreed to increase output by 206,000 barrels per day from April,following one of the alliance’s most consequential meetings in years,held against the backdrop of US and Israeli strikes on Iran and rising threats to Gulf oil flows.
The figure falls between the 137,000 bpd base case most analysts had anticipated and the more aggressive increases of 400,000 to 500,000 bpd that had been suggested.
“The eight participating countries decided to resume the unwinding of the 1.65 million bpd of additional voluntary adjustments announced in April 2023 and agreed on a production adjustment of 206,000 bpd,”Opec said.
The meeting followed US and Israeli strikes on Iran launched on Saturday,and Tehran’s retaliatory missile and drone salvos against Gulf states overnight.The exchange has disrupted tanker traffic in the Strait of Hormuz,through which about a fifth of the world’s seaborne oil flows.
Opec+said it was continuing to“closely monitor and assess market conditions”and was retaining full flexibility“to increase,pause or reverse the phase out of the voluntary production adjustments”.
The group said all options were on the table including reversing the previously implemented voluntary adjustments of the 2.2 million bpd,announced in November 2023.
Shipping threats
The meeting followed the most intense escalation in the Gulf since the early 1990s.The US-Israeli strikes led to the assassination of Iranian supreme leader Ayatollah Ali Khamenei,which was confirmed by state media on Sunday morning.Iran has been retaliating to Israeli strikes by hitting the UAE,Saudi Arabia,Qatar,Oman and Kuwait.The targets were US bases in these countries,however civilian infrastructure was also hit leading to casualties.
Oman's southern,Indian Ocean-facing Port of Duqm was attacked by drones on Sunday.Palau-flagged tanker Skylight,which was sailing off the Omani exclave of Musandam,close to the Strait of Hormuz also came under attack,Oman’s Maritime Security Centre,said.It was located five nautical miles north of Khasab Port at the time of the incident.
Reports suggest the latest barrage also struck Iraq’s oil sector,with a potential impact on its southern export terminals,through which Baghdad sells most of its crude.Gulf production centres have so far been spared Iran’s targeted attacks.
About 15 million bpd of crude and 5.5 million bpd of refined products were flowing through the Strait of Hormuz as recently as January and last month,according to S&P Global Commodities at Sea data.Vessels have been piling up on both sides of the strait's entrance since Saturday night.
High risk premiums
Opec+holds about 3.5 million bpd in spare capacity,which is the volume of production that can be brought online in 30 days and sustained for 90.It is largely concentrated in Saudi Arabia and the UAE,which are best positioned to compensate for any prolonged loss of Iranian or Iraqi barrels.
S&P Global Commodity Insights sounded a bullish note on risk premiums on Sunday,noting that oil prices had already gained more than$10 per barrel across January and last month as tension over a conflict with Iran rose.Further upside was likely,analysts said,unless physical supply was lost.
“Underlying global crude stocks were expected pre-conflict to build at nearly 3 million bpd from March through May,although some of that may be at risk depending on how crude flows are impacted by the conflict,”a note from the analysts said.
Iran's crude exports of about 1.5 million bpd,mostly bound for China,is now considered directly at risk.Even without a full closure,Iranian tanker seizures or drone attacks on commercial shipping could drive up voyage times and costs for all Middle East exports,impacting supply.
Insurers flee risk
War risk insurers submitted cancellation notices on Saturday for policies covering vessels moving through the Gulf and the Strait of Hormuz,brokers told the Financial Times.Prices are set to rise as much as 50 per cent over the coming days.
Coverage for ships transiting the Gulf had been running at about 0.25 per cent of a vessel's replacement cost.
For a$100 million ship,that means premiums jumping from$250,000 to as much as$375,000 a voyage,according to Dylan Mortimer,marine hull UK war leader at broker Marsh.
At least three vessels turned away from the strait on Saturday rather than pass through it,and EOS Risk said some ships had received what appeared to be a radio warning from Iran's Revolutionary Guard Corps that the strait was closed to shipping.
