OPEC+ holds supply line as Iran risk lifts crude

Oil prices extended gains as OPEC+ signalled it would keep production levels unchanged, choosing caution over a pre-emptive response to higher prices driven by geopolitical tension linked to Iran and fragile demand signals from major economies.

Benchmark Brent crude traded above the mid-$80s a barrel during the session, supported by concerns over potential supply disruption in the Middle East and tighter physical markets in parts of Asia. West Texas Intermediate followed a similar trajectory, narrowing the discount to Brent as inventories at key US hubs showed signs of drawing down after weeks of volatility.

The OPEC+ alliance, which includes members of the Organisation of the Petroleum Exporting Countries and key non-OPEC producers, has maintained its existing output curbs, including voluntary reductions led by Saudi Arabia and Russia. Delegates familiar with the discussions said the group saw little justification for altering policy while geopolitical risks remained fluid and the demand outlook uneven across regions.

Iran’s role has returned to the centre of oil market calculations as tensions involving Tehran have intensified. While no direct disruption to supply has occurred, traders have priced in a higher risk premium, mindful of Iran’s strategic position near key shipping routes and its status as a significant producer within OPEC. Any escalation that affects flows through the Strait of Hormuz would have outsized consequences for global supply, even if such a scenario is not viewed as imminent.

Saudi Arabia, the de facto leader of OPEC+, has repeatedly emphasised the need for stability and predictability in the oil market. Officials have signalled that reacting too quickly to short-term price movements could undermine the effectiveness of the group’s strategy, which has focused on supporting prices while avoiding a sharp loss of market share. Russia has echoed that view, arguing that disciplined supply management remains necessary amid sanctions-related uncertainties and shifting trade patterns.

Demand trends remain mixed. Consumption growth in parts of Asia has been resilient, underpinned by travel, petrochemical activity and seasonal factors. By contrast, Europe’s outlook is subdued as industrial activity struggles to regain momentum, while the United States faces questions over the durability of fuel demand as efficiency gains and electric vehicle adoption continue. Analysts note that global demand is still expanding, but at a pace that falls short of earlier projections made at the start of the year.

Market participants are also watching the impact of higher interest rates and currency movements on oil consumption. A stronger dollar has made crude more expensive for buyers using other currencies, tempering some of the bullish momentum from supply-side risks. At the same time, refinery margins have improved in several regions, encouraging steady crude intake and lending support to prices.

Within OPEC+, compliance with agreed cuts has been a recurring issue, though monitoring data suggest adherence has improved compared with earlier periods. Saudi Arabia’s additional voluntary reduction of 1 million barrels a day has been a key pillar of the current policy stance, offsetting higher output from some other members. The group has indicated that these voluntary measures can be adjusted if market conditions change materially, but no such shift appears imminent.

The decision to hold supply steady reflects a broader recalibration within OPEC+ after years of sharp swings in demand caused by the pandemic, followed by inflation shocks and geopolitical upheaval. Producers are seeking to avoid a repeat of past cycles where overproduction led to price collapses, eroding revenues and fiscal stability for oil-dependent economies.