London: The global oil market is changing as the war involving Iran and the continuing disruption of the Strait of Hormuz reduce the ability of OPEC+ to influence oil prices. At the same time, weaker oil demand in China is helping to limit some of the upward pressure caused by the loss of supplies from the Middle East.
OPEC+ remains one of the world's most important groups of oil producing countries. However, the conflict has made it harder for its members to use production increases or cuts to influence the market in the way they have done in the past.
OPEC+ accounted for about 40 percent of global oil production in July, down from more than 48 percent before the conflict, according to calculations based on International Energy Agency data.
The decline is not entirely a result of the war. The United Arab Emirates left OPEC and OPEC+ effective May 1, accounting for about four to five percentage points of the decline in the group's share of global production.
The conflict has also reduced the ability of several OPEC+ members to move additional oil to international markets. The key issue is no longer simply how much oil producers can pump, but how much they can physically produce, transport and export.
The Strait of Hormuz remains severely disrupted. Before the war, the waterway carried about one fifth of the world's seaborne oil and liquefied natural gas shipments. Saudi Arabia, Iraq, Kuwait and other Gulf producers have faced major difficulties using the normal export route.
Some producers have used alternative routes and terminals outside the Strait. Saudi Arabia, for example, has been moving some oil through alternative arrangements. However, these routes have not been sufficient to restore normal regional exports.
The disruption has had a major effect on global supply. The International Energy Agency expects global oil supply to decline by about 4.3 million barrels per day in 2026 to around 102 million barrels per day.
Global oil inventories have also come under pressure. The agency reported that worldwide observed oil stocks fell by 69 million barrels in July. Total stocks had fallen below 7.9 billion barrels, while cumulative withdrawals since the end of February had reached about 410 million barrels.
Despite the disruption, oil prices have not remained at the very high levels seen earlier in the conflict. One important reason is weaker demand from China.
China is the world's largest crude oil importing country, but its oil purchases have fallen sharply. Since the war began, China has bought roughly 400 million fewer barrels of oil than during the same period last year.
Chinese crude arrivals reached about 8.41 million barrels per day in July, but that was still 24.3 percent below the level recorded in July last year.
The fall has been linked to restrictions on fuel exports, lower refinery output and the growing use of electric transport. China has also been drawing on its oil stocks.
Lower Chinese demand has helped limit some of the upward pressure on oil prices caused by the supply disruption. This has given China an unusual influence over the market. Instead of influencing supply like OPEC+, China is increasingly affecting the market through changes in demand.
China also remains a major buyer of Iranian oil, mainly through independent refiners. However, Iranian shipments to China have come under increasing pressure from United States sanctions and have fallen in recent months.
Saudi Arabia and other Gulf producers are also looking for ways to keep oil moving despite the disruption. Saudi Aramco has arranged additional shipments using routes and transfers outside the Strait, with some cargoes heading to China.
OPEC+ has not stopped making production decisions. On August 2, Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria and Oman agreed to implement an additional production adjustment of 188,000 barrels per day in September. The group is due to meet again on September 6.
However, the effect of such decisions depends increasingly on whether producers can actually move the oil to buyers.
Oil prices fell again on Thursday as diplomatic efforts raised hopes that shipping through the Strait of Hormuz could gradually improve. In morning trading, Brent crude fell about 1.2 percent to $86.77 a barrel, while West Texas Intermediate crude fell about 1.4 percent to $81.10.
Iran and Oman are discussing a temporary framework for managing shipping through the Strait. The proposed arrangement includes a temporary navigation corridor and cooperation on clearing mines from the waterway. Iran and Oman are continuing technical discussions about a longer term arrangement.
The proposed route does not mean that normal shipping has returned. Ten visible commodity vessels passed through the Strait on Wednesday, compared with a 10 day average of 15, according to shipping data. Actual movements could be higher because some vessels may have their tracking systems turned off.
Qatar is also involved in diplomatic efforts. Its Prime Minister Sheikh Mohammed bin Abdulrahman Al Thani is expected to visit Tehran for talks aimed at reducing tensions and creating conditions for dialogue.
The diplomatic activity has helped push oil prices lower, but the underlying supply risks remain.
If shipping through Hormuz returns to normal, Gulf producers could regain some of their ability to increase exports and OPEC+ could recover part of its traditional influence over the oil market.
If the disruption continues, however, the market will remain dependent on alternative export routes, China's demand, emergency stocks and diplomatic developments.
The conflict has shown that production capacity alone is not enough to guarantee influence over the oil market. The ability to transport oil safely is now just as important.
OPEC+ remains a major player in global energy markets, but China's changing demand has become an increasingly important factor in how the market responds to the supply shock. The future direction of oil prices will depend heavily on whether the Strait of Hormuz can return to normal before global inventories come under even greater pressure.