Crude prices have risen recently as the US and Iran have once again traded strikes. However, prices have come down slightly after US President Donald Trump signalled that the operation would be limited. Against this backdrop, attention now turns to the OPEC Joint Ministerial Meeting over the weekend, which could prove controversial.
The oil production cartel comprises 21 countries, plus Russia. It has seen its influence on the market dwindle since the US-Israeli war against Iran started. In reality, that influence had already declined substantially after Russia’s invasion of Ukraine. A large section of the global market also turned away from Russian crude. Going forward, the cartel must decide how to respond. That could be an important factor at Saturday’s meeting.
Cuts and Market Share
OPEC is completing this month the production cuts it agreed to in 2023 to support oil prices. Although unofficial, the market widely believes that OPEC+ wants Brent crude to trade around $90 per barrel. This level would help support the budgets of key member nations.
However, the war in the Middle East has recently kept prices elevated without further production cuts. As a result, members have less incentive to reduce output.
At the same time, new production is coming online. Major consumer markets are also looking for alternative energy sources. This has made it harder for OPEC to maintain market share and influence international prices.
Members have also pushed back against production quotas. They argue that the quotas do not reflect each country’s production capacity. This, among other factors, led to the UAE’s departure in May.
2027: The Decisive Year
With this month’s production increase, OPEC+ has rolled back its “voluntary” production curtailments. The cartel now needs to determine its production quotas for next year.
Technicians are currently studying the production capacity available across members. They will release the results later this month. However, some members have already expressed concerns about the current arrangements.
Iraq wants to increase production. Venezuela is also threatening to leave after signing a major production expansion and sale agreement with the US.
Meanwhile, forecasts from OPEC and the IEA point to a potential supply glut starting next year. If production rises further, oil prices could fall sharply.
What the Market Is Looking For
Short-term crude price moves reflect the changing tensions between the US and Iran. However, they do not seem to account for the longer-term outlook. That outlook is likely to be the main focus of the OPEC meeting this week.
The consensus is that the war with Iran will likely end after November in one form or another. If the conflict continues much longer, the market could fully adjust to a new normal. This could leave the Strait of Hormuz in an uncertain state.
Vessel trackers report a substantial decline in traffic. However, US military observers say traffic remains strong. Some shipments have also gone “dark” to avoid Iranian strikes. As a result, vessel trackers may not detect them.
In either case, the war has pushed investors and crude buyers to look outside OPEC for delivery security. The consensus is that production quotas should remain in place. Traders will also monitor any potential disagreements among OPEC+ members.
