Analysis: US-Iran conflict, not OPEC+, dominates oil price outlook

Oil prices are unlikely to feel any significant pressure even if OPEC and its allies slightly raise production in April.

Eight nations from the Organization of the Petroleum Exporting Countries and allies’ alliance that voluntarily restricted oil production are set to determine a strategy for April's output this weekend.

According to sources within OPEC+, statements suggest a potential increase in production quotas by 137,000 barrels per day.

“This is because the oil market is less oversupplied than expected at the beginning of the year, as a considerable portion of the oversupply is difficult to sell due to sanctions and is being stored in tankers at sea,” Carsten Fritsch, commodity analyst at Commerzbank AG.

At the time of writing, the price of West Texas Intermediate crude oil was at $65.44 a barrel, up 0.3%, while Brent was at $71 a barrel, up 0.2%.

Output increase unlikely to pressure prices

The actual increase is expected to be more modest, however, as members were already producing below target in January.

Contrary to initial expectations, the oil market is not well-supplied. This is clearly indicated by the forward curve's backwardation, which suggests the large surplus that many had forecast has not materialised, according to Warren Patterson, head of commodities strategy at ING Group.

In addition, there have been supply disruptions, such as recently in Kazakhstan.

“The OPEC+ decision is complicated by the US-Iran conflict, as it is currently difficult to predict whether there will be supply disruptions and how severe they will be,” Commerzbank’s Fritsch said.

A gradual expansion of production is expected against the current backdrop.

Nevertheless, full implementation is improbable because Russia's current oil production level is already substantially below the agreed-upon amount, according to Commerzbank.

Supply constraints from Kazakhstan and Russia

For Kazakhstan, the situation hinges on the return to normal production levels at the country's largest oil field.

In addition, the country still has to make compensatory cuts for previous overproduction.

Disruptions at the CPC terminal earlier this year impacted Kazakh oil flows, causing crude loadings to drop sharply to just over 900,000 barrels per day in January, significantly down from the 2025 average of more than 1.5 million barrels per day (bpd).

Loadings are now gradually recovering, with projections indicating a potential rise to approximately 1.6 million bpd in March, an increase from the planned 1.2 million b/d in February.

“The announcement of a slight increase in production by OPEC+ is therefore unlikely to weigh on oil prices,” Fritsch added.

India's purchases of Russian oil have also slowed, a development linked to US sanctions and the EU's prohibition on refined products made from Russian oil.

Should China absorb Russian oil that was previously destined for India, the market impact is expected to be more contained.

Should this not occur, a more significant drop in Russian oil production is the probable outcome.

Russian crude output, according to OPEC data, declined by approximately 130,000 barrels per day (bpd) between November and January.

US-Iran conflict dominates

More important for oil prices at present is the news on the conflict between the US and Iran.

While Thursday’s discussions did not achieve a breakthrough, the mediator, Oman, and Iran considered them constructive.

Another negotiation session is planned for the coming week. The agreement is up against a deadline set by US President Donald Trump, which will expire within a week.

“While there are efforts to find a diplomatic solution, the buildup of US military assets means there is the very real risk of significant escalation in the event a deal cannot be reached,” Warren Patterson, head of commodities strategy at ING Group, said in a report.

“The market is pricing in a large risk premium due to this uncertainty; we believe as much as US$10/bbl,” Patterson said.

The market's strength, however, cannot be attributed solely to the uncertainty surrounding Iran.

A more significant worry for the market is the prospect of wider US strikes that extend beyond nuclear facilities, possibly endangering Iran's oil supply.

This suggests the US objective might extend beyond ending Iran's nuclear program to potentially aiming for regime change.

Such a goal would likely provoke a far more aggressive Iranian response, jeopardising not only Iranian oil supply but also wider flows from the Persian Gulf, which transit the Strait of Hormuz (SoH), Patterson said.

Strait of Hormuz risk and price scenarios

Even with potential pipeline diversions accounted for, approximately 9 million bpd of crude oil and 6 million bpd of refined products remain exposed to risk, according to ING Group’s calculations.

A successful blockade of the SoH would create significant market upside, as the resulting supply losses could not be offset, potentially driving Brent crude to $140/bbl.

“Higher prices would be needed to ensure demand destruction,” Patterson added.

A complete and sustained blockage of the strait is improbable and would provoke a swift international reaction.

Conversely, localised disruptions, such as attacks on or the seizure of oil tankers, would likely cause Brent crude prices to initially surge toward $100 per barrel before stabilising, mostly within the $80–90 per barrel range, ING’s data showed.

“The continuing risk of a US military strike is therefore likely to remain the dominant issue on the oil market, which suggests that oil prices will remain well supported,” Commerzbank’s Fritsch concluded.