OPEC+'s production share falls to 40%, signaling a structural shift in oil market dominance

Six months after conflict erupted in the Middle East, the dominant force in the global oil market is undergoing a structural shift: OPEC+, which has long relied on supply adjustment to regulate oil prices, is seeing both its market share and policy effectiveness shrink.

According to Reuters’ calculations based on International Energy Agency (IEA) data, OPEC+’s share of global oil output in July dropped to about 40%, falling below the pre-conflict level of over 48% at the end of February; about four to five percentage points of this decrease came from the United Arab Emirates’ departure from OPEC in May.

The shrinking share on the supply side combined with contraction on the demand side is making OPEC+’s production decisions increasingly unable to influence oil prices—since March, most of its six announced production increases have remained on paper. This shift from “supply-driven” to “demand-driven” is changing the weight of price-setting in the crude oil market.

Demand Side: Contracting Demand Becomes the New “Ceiling” for Oil Prices

According to Reuters, the sharp weakening of global oil demand has become one of the key factors in restoring balance to the oil market by 2026. Against the backdrop of severe supply disruptions, contraction on the demand side has effectively offset part of the supply gap, limiting the upward room for oil prices.

Behind this change are not only cyclical factors such as fuel export restrictions and refinery cutbacks, but also structural influences from increased electric vehicle penetration. Slower demand growth means that even in the face of large-scale supply disruptions, the market may not necessarily experience sustained shortages.

Reuters cited market participants’ views that the demand side is acquiring the “swing” attribute that previously belonged to OPEC+—when the supply side cannot quickly adjust the market by increasing or decreasing production, changes in demand become an important variable influencing the global supply-demand balance.

Supply Side: Share Drops to 40%, OPEC+ Struggles to Implement Production Increases

Supply-side data also shows that OPEC+’s market control is weakening.

According to Reuters’ calculations based on IEA data, OPEC+ production in July accounted for only about 40% of global oil supply, significantly below the level of over 48% before the conflict. Aside from the share change brought by the UAE’s withdrawal from OPEC, continued production increases from non-OPEC oil-producing countries such as North America have further diluted OPEC+’s share in global supply.

More crucially, nominal capacity does not equal actual deliverable supply. OPEC+’s core oil producers, such as Saudi Arabia and Russia, still possess strong ability to ramp up production, but after the Strait of Hormuz—a key export route—was blocked, some oil that could have been produced struggles to reach international markets.

Therefore, since March, the six production increases announced by OPEC+’s core group have largely stayed in the realm of policy and have had limited impact on real market supply. During the brief US-Iran ceasefire in July, the market once bet on the reopening of the Strait of Hormuz, and oil prices only responded significantly to production increase expectations under these circumstances.

Historical Comparison: From “Swing Producer” to Two-way Game of Supply and Demand

This change is in stark contrast to the oil market in 2019. At that time, traders closely watched OPEC+ production decisions, with the market focus on whether it would increase or decrease output, and by how much.

Now, the market’s concern is how much oil can actually be produced and exported under the Middle East conflict. With OPEC+’s supply share declining and production policies struggling to translate into actual supply, demand-side changes are having a greater impact on oil prices, and the pricing logic of the global oil market has shifted from “supply-driven” to a combined influence of supply and demand.

OPEC+ responds that its production decisions are aimed at supporting market stability and are not targeted at specific price levels. Oil prices going forward will still depend on the progress of reopening the Strait of Hormuz for navigation, as well as whether OPEC+ production increase plans can truly be implemented.