OPEC+ plans to decide on September output quotas Sunday

"Physical flows" remain the dominant driver of the oil market, says Salih Yilmaz of Bloomberg Intelligence.

The Organization of the Petroleum Exporting Countries and its allies may decide Sunday to lift their oil production quotas for a sixth straight month - but finding ways to export those extra barrels will be the real problem.

The ability for Persian Gulf producers to "translate higher quotas into actual exports still depends on shipping conditions through the Strait of Hormuz," said Salih Yilmaz, a senior industry analyst at Bloomberg Intelligence. "Quota policy matters because it signals OPEC+'s medium-term strategy, but physical flows remain the dominant driver of the market while regional disruption persists."

Some members of the group known as OPEC+ have been gradually unwinding voluntary production cuts of 1.65 million barrels that were announced in April 2023. Those members - which included United Arab Emirates until the country left OPEC on May 1 - had been adding those barrels back into the market since the final quarter of 2025. They paused those monthly hikes from January to March of this year.

At a meeting in March, the group decided that because of a steady global economic outlook and low oil inventories, they would restart output increases for the month of April.

'[T]he real risk is no longer simply whether enough crude exists. It is whether the crude can move, be refined and reach the right market without rising freight, insurance and processing costs.'Stephen Innes, SPI Asset Management

That decision followed the beginning of the U.S. and Israel's war with Iran in late February, which disrupted oil-tanker traffic through the Strait of Hormuz, a critical waterway that had previously handled about 25% of the world's seaborne oil trade.

During a temporary ceasefire, which started in mid-June and ended July 8, Kpler recorded an average of about 45 vessel crossings per day through the waterway. That dropped to roughly 13 crossings a day after the conflict reignited.

"Ships are still moving, but the risk and cost of moving them are rising," said Felipe Germini, founder and managing director at Germini Energy. "That looks more like a passage problem than a normal production shortage."

At the last meeting held in early July, seven OPEC+ members raised their output quota for a fifth month in a row, by 188,000 barrels per day for the month of August.

But part of that increase is "only on paper when members are producing below target or cannot export what they produce," said Germini. "In those circumstances, another quota increase doesn't necessarily add physical supply."

Though global benchmark Brent oil prices (BRN00) recently fell to their lowest level in two weeks, they ended July with a monthly gain of more than 20%.

Futures prices are still reacting quickly to every ceasefire rumor or diplomatic headline, said Stephen Innes, managing partner at SPI Asset Management. The Strait of Hormuz's closure threatens Gulf exports, disruption to the Bab el-Mandeb Strait threatens the alternative Red Sea route, and damage to Russian refineries is tightening diesel and other product supplies at the same time, he noted.

"That means the real risk is no longer simply whether enough crude exists," said Innes. "It is whether the crude can move, be refined and reach the right market without rising freight, insurance and processing costs."

In a month's time, global benchmark Brent crude could be trading at around $85 to $90 a barrel, with petroleum product markets remaining tighter than crude prices suggest, said Innes.

A credible de-escalation in the Middle East, meanwhile, could pull Brent back toward $75 to $80 a barrel, he added - but if ship traffic through the Hormuz and Bab el-Mandeb deteriorate together, Brent could quickly trade above $110.

"The market can recover from a headline," Innes said. "It takes much longer to recover lost refinery capacity, shipping confidence and logistical flexibility."

-Myra P. Saefong