OPEC+ to Weigh Output Hike With 10 Million Barrels Offline

Eight OPEC+ members will consider a further oil output increase when they meet Sunday, a move to pre-position barrels for a potential reopening of the Strait of Hormuz, according to two sources. The discussions come as the global market grapples with a supply loss of about 10 million barrels per day from the critical waterway’s closure.

"Ten million barrels per day of crude have been lost from the closure of the Strait of Hormuz," Giovanni Staunovo, a commodity analyst at UBS Global Wealth Management, said in a recent interview. He added that the path of least resistance for oil prices is higher as long as the strait remains shut, a sentiment pushing Brent crude futures near $116 a barrel, up 60 percent since the conflict began.

The supply crunch has been partially offset by rerouting approximately 7 million barrels per day through alternative pipelines and the release of strategic reserves, according to Kpler data. Still, this leaves a net global shortfall of between 9 million and 13 million barrels per day, according to various analyst calculations. Saudi Arabia’s East-West pipeline has nearly doubled its flows to 4.6 million barrels per day, while the UAE’s pipeline to Fujairah has boosted exports to 3.2 million barrels per day.

The potential OPEC+ production increase, while aimed at stabilizing markets post-conflict, highlights the extreme strain on the global energy system. The decision hinges on the viability of a reopening of the strait, but with refined fuel prices for diesel and jet fuel already spiking above $200 a barrel in some markets, any sustained disruption threatens to trigger significant demand destruction and a severe economic shock.

Alternative Routes Under Strain

While Saudi Arabia and the United Arab Emirates have rushed to reroute oil via pipelines that circumvent the Strait of Hormuz, these alternatives are now facing their own set of threats. The rerouted barrels largely depend on passage through the Bab-el-Mandeb Strait, which sits along Yemen’s coast where Iran-backed Houthi forces operate.

Recent Houthi attacks in the Red Sea and Gulf of Aden have raised fears that the waterway, which handled about 5 percent of global seaborne oil trade in 2024, could be compromised. JP Morgan analysts estimate that significant disruptions at the Bab-el-Mandeb Strait could add another $20 a barrel to oil prices. If both the Yanbu and Fujairah export terminals were compromised, moving oil out of the Arabian Peninsula would become "virtually impossible," according to Kpler's lead oil analyst Matt Smith.

A Fight for Supplies

The longer the Strait of Hormuz remains closed, the greater the risk of a prolonged impact on supply, forcing a painful and rapid energy transition. "If you think about the magnitude of the shock coming out of the Gulf right now, you could lose between 5-10 million barrels a day of demand, which will have a significant impact similar to the seventies," said Jeff Currie, chief strategy officer at Carlyle Group.

Asian markets, which rely heavily on crude shipped through the strait, are already showing signs of demand destruction, with consumption down by almost 2 million barrels a day this month, according to consultancy FGE NexantECA. Traders report that a fight for supplies is emerging, with buyers in Latin America and Asia desperately seeking alternative suppliers to replace Middle East barrels, often sealing deals with little negotiation.

"It’s clear to me if this crisis lasts more than three or four months, it becomes a systemic problem for the world,” Patrick Pouyanne, CEO of TotalEnergies, said at the CERAWeek conference in Houston. With the US strategic reserve playbook "pretty bare" according to the American Petroleum Institute, the market is looking toward Sunday's OPEC+ meeting for any signal of relief, even if that relief is conditional on a fragile peace.

This article is for informational purposes only and does not constitute investment advice.