PHOTO: REUTERS/FILE

REUTERS, Launceston

The Opec+ decision to lift crude oil output by 206,000 barrels per day (bpd) from April is probably the least consequential decision the group has made in nearly a decade of existence.

Adding about 0.2 percent of global oil demand to supply a month from now is little more than a symbolic gesture in the face of a widening conflict in the Middle East, which is already leading to serious supply disruptions.

But there was little the eight members of the Opec+ group undertaking voluntary production cuts could have done at their meeting on Sunday to assure the market about supply security.

The increase of 206,000 bpd from April was above the 137,000 bpd that had been tipped by analysts ahead of the meeting, and if there is any impact it’s the symbolism of the group saying they can add more barrels to the market if needed.

Certainly, the Opec+ output decision wasn’t enough to prevent crude prices spiking higher at Monday’s open, with benchmark Brent futures jumping as much as 13.6 percent to a 12-month high of $82.37 a barrel, before easing to trade at $79.10 in early Asian trade.

The main issue for crude oil markets is how long will supplies be disrupted from the Middle East, and how will top importers react.

In the fog of war there is always considerable uncertainty, and the current bombing and missile strikes by Israel and the United States against Iran, and the retaliation targeting neighbouring Gulf countries, is no exception.

Iran’s decision to strike at civilian targets in the United Arab Emirates (UAE) may be either a strategic blunder or strategic brilliance, with much riding on how long Tehran can keep up the attacks and how long the UAE can successfully defend what are likely to be increasingly worried civilian and expatriate populations.

But for crude oil markets, it’s worth focusing on what is known and what the most likely responses are to the current situation.

The Strait of Hormuz, through which about 20 million bpd of crude and refined products moves, is effectively closed as ship owners and insurers are reluctant to risk vessels while a major conflict is underway.

The good news on this is that so far it appears Iran hasn’t actively tried to block the narrow waterway that carries almost 20 percent of global crude and product supply. This means that when the shooting stops tankers will be able to rapidly move through the Strait, easing any supply bottleneck.

There are also other factors at work that will likely ease some of the supply concerns.

The first is that China, the world’s biggest crude importer, is likely to trim arrivals in coming months.

China’s imports have been strong in recent months, with LSEG Oil research estimating January arrivals at 11.61 million bpd and February’s estimated at 13.42 million bpd, which would eclipse the previous record of 13.18 million bpd in December.

With the surge in prices it’s likely that China will cut up to 2 million bpd from February’s levels by the time cargoes being arranged currently are delivered in May and June.