As OPEC+ meets, Iran war hobbles power to shape oil market

Seven members raise output targets by nearly 600,000 bpd from April to June as actual production falls

OPEC+ is set to agree on Sunday a fourth increase in oil output targets in as many months. three OPEC+ sources said, even though theUnited States' war with Iranis still preventing several of the group's members from pumping more.

The war has cut oil flows viathe Strait of Hormuz. creating the world'sbiggest ever supply crisisas key OPEC+ members including Saudi Arabia have been unable to supply customers in full since the end of February.

The crisis for OPEC+ deepened when theUnited Arab Emirates leftthe Organisation of the Petroleum Exporting Countries after almost 60 years.

Seven core members of OPEC+, which groups OPEC. allied producers including Russia, have increased their output quotas from April to June by almost 600,000 barrels per day. In reality. the group's production has collapsed due to export cuts by Gulf members, averaging 33.19 million bpd in April versus 42.77 million in February, according to OPEC figures.

The seven of 21 OPEC+ members due to meet on Sunday are Saudi Arabia, Iraq, Kuwait, Algeria, Kazakhstan, Russia,. Oman. Ministers from the 21 member states of OPEC+, the main oil producing nations. their allies, are holding their quarterly meeting online.

The seven members will likely increase targets by about 188,000 bpd from July, the sources said. This is thesame as the June hike, which was adjusted down from monthly increases of 206,000 bpd in May. April to take into account the UAE exit.

Read:Oil shock and the import trap

However. according to analysts, even if the cartel members vow to ramp up output by thousands of barrels per day, geopolitical realities mean they probably won't move the needle on prices.

All the sources spoke on condition of anonymity and said a final decision had not been made.

A full OPEC+ ministerial meeting is also scheduled for Sunday. is not expected to make any policy changes, the sources said.

Tehran's threats ofretaliatory attacksto US. 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 bpd.

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," said Ole Hansen. a commodities analyst at Saxo Bank. "There is very little OPEC can do," he toldAFP.

AUS blockade on Iranian portsmeans "it will be even less than that" in reality. said Homayoun Falakshahi, head of crude oil analysis at data firm Kpler.

The UAE's 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.

Read More:UAE's new oil pipeline push to double export capacity bypassing Hormuz

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. regular supply of petroleum to consumers, and a steady income to producers".

For Falakshahi. the only factor limiting further oil price spikes at the momentis China, "which is buying less oil than normal" by tapping into its vast strategic reserves.

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