The Organisation of Petroleum Exporting Countries (OPEC) crude oil production plunged by the most in at least four decades in March as conflict in the Middle East throttled exports from key members, according to a Bloomberg survey.
Output from OPEC collapsed by 7.56 million barrels a day or about 25 per cent to 22 million a day, the survey showed. The war between a US-Israeli alliance and OPEC member Iran has shuttered the Strait of Hormuz, forcing Saudi Arabia, the United Arab Emirates and Iraq to slash production.
The March slump is the largest for a single month in data compiled by Bloomberg extending back to 1989, though the organisation did cut more supply over a two-month span in 2020 when global fuel demand collapsed during the Covid-19 pandemic.
Such a drop would, at least in barrel terms, also surpass that of the 1973 Arab oil embargo, the report said. Markets experienced a “gross loss” of 5 million barrels a day between October and December of that year, according to Daniel Yergin’s history “The Prize: The Epic Quest for Oil, Money & Power,” though this earlier shock took place in a much smaller global market.
The supply losses have roiled crude prices, which hit a multi-year high of almost $120 a barrel in London last month, while soaring costs for products like jet fuel, diesel and petrol threaten pain for consumers.
Brent futures traded near $110 on Tuesday as the US attacked military targets across Iran’s Kharg Island and President Donald Trump threatened massive new bombardment unless Tehran accepts US terms.
Iraq, the OPEC member most reliant on the Strait of Hormuz, suffered the biggest decline, with production declining by 2.76 million barrels a day to 1.63 million a day, according to the survey.
Iran’s military said over the weekend that “Brotherly Iraq is exempt from any restrictions” on transit via the vital sea corridor. Nonetheless, tanker-tracking shows there’s no indication yet of a rush to test that dispensation. Ship traffic through Hormuz is slowly recovering, but it remains at a trickle compared with prewar numbers.
Saudi Arabia and the UAE experienced the next-largest losses, though these were mitigated by their ability to partially divert exports on alternative oil pipelines that bypass the strait.
Saudi production dropped by 2.07 million barrels a day to 8.36 million a day, while the UAE’s fell by 1.44 million a day to 2.16 million, according to the survey. Even with the Kingdom’s ability to export via the Red Sea, tanker-tracking shows Saudi exports tumbled by roughly 50 per cent in March.
Russia, a leading member of a wider alliance known as OPEC+, has also experienced disruption following a wave of Ukrainian drone attacks on oil export terminals on the Baltic Sea. The key Baltic port of Ust-Luga resumed crude loadings this week, having stopped at the end of March.
Before the war, eight key OPEC+ nations had been in the process of restoring oil production halted several years earlier. On April 5, they agreed to a symbolic supply increase for May in order to continue the process, but warned that it will take a long time to restart oil facilities damaged during the fighting.
Bloomberg’s production survey is based on ship-tracking data, information from officials and estimates from consultants Rapidan Energy Group, FGE NexantECA, Kpler and Rystad Energy, the report added.
Emmanuel Addeh
