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OPEC+ may struggle to cover major Iranian oil supply disruption
Agencies London Oil market participants have switched to dreading a shortage in fuel from focusing on impending oversupply in just two days this week. After Israel attacked Iran and Tehran pledged to retaliate, oil prices jumped as much as 13 percent to their highest since January as investors price in an increased probability of a major disruption in Middle East oil supplies. The Reuters Power Up newsletter provides everything you need to know about the global energy industry. Part of the reason for the rapid spike is that spare capacity among OPEC and allies to pump more oil to offset any disruption is roughly equivalent to Iran's output, according to analysts and OPECwatchers. Saudi Arabia and the United Arab Emirates are the only OPEC+ members capable of quickly boosting output and could pump around 3.5 million barrels per day (bpd) more, analysts and industrysources said. Iran's production stands at around 3.3 million bpd, and it exports over 2 million bpd of oil and fuel. There has been no impact on output so far from Israel's attacks on Iran's oil and gas infrastructure, nor on exports from the region. But fears that Israel may destroy Iranian oil facilities to deprive it of its main source of revenue have driven oil prices higher. The Brent benchmark last traded up nearly 7 percent at over $74 on Friday. An attack with a significant impact on Iranian output that required other producers to pump more to plug the gap would leave very little spare capacity to deal with other disruptions - which can happen due to war, natural disasters or accidents. And that with a caveat that Iran does not attack its neighbours in retaliation for Israeli strikes. Iran has in the past threatened to disrupt shipping through the Strait of Hormuz if it is attacked. The Strait is the exit route from the Middle East Gulf for around 20 percent of the world's oil supply, including Saudi, UAE, Kuwaiti, Iraqi and Iranian exports. Iran has also previously stated that it would attack other oil suppliers that filled any gap in supplies left due to sanctions or attacks on Iran. 'If Iran responds by disrupting oil flows through the Strait of Hormuz, targeting regional oil infrastructure, or striking US military assets, the market reaction could be much more severe, potentially pushing prices up by $20 per barrel or more,' said Jorge Leon, head of geopolitical analysis at Rystad and a former OPECofficial. The abrupt change in calculus for oil investors this week comes after months in which output increases from OPEC and its allies, a group known as OPEC+, have led to investor concern about future oversupply and a potential price crash. Saudi Arabia, the de facto leader of OPEC, has been the driving force behind an acceleration in the group's output increases, in part to punish allies that have pumped more oil than they were supposed to under OPEC+ agreements. The increases have already strained the capacity of some members to produce more, causing them to fall short of their new targets. Even after recent increases, the group still has output curbs in place of about 4.5 million bpd, which were agreed over the past five years to balance supply and demand. But some of that spare oil capacity - the difference between actual output and notional production potential that can be brought online quickly and sustained - exists only on paper. After years of production cuts and reduced oilfield investment following the COVID-19 pandemic, the oilfields and facilities may no longer be able to restart quickly, said analysts and OPEC watchers. Western sanctions on Iran, Russia and Venezuela have also led to decreases in oil investment in those countries. 'Following the July hike, most OPEC members, excluding Saudi Arabia, appear to be producing at or near maximum capacity,' JP Morgan said ina note. Outside of Saudi Arabia and the UAE, spare capacity was negligible, said a senior industry source who works with OPEC+ producers. 'Saudi are the only ones with real barrels, the rest is paper,' the source said. He asked not to be named due to the sensitivity of the matter. Saudi oil output is set to rise to above 9.5 million bpd in July, leaving the kingdom with the ability to raise output by another 2.5 million bpd if it decides to. That capacity has been tested, however, only once in the last decade and only for one month in 2020 when Saudi Arabia and Russia fell out and pumped at will in a fight for market share. Saudi Arabia has also stopped investing in expanding its spare capacity beyond 12 million bpd as the kingdom diverted resources to other projects. Russia, the second largest producer inside OPEC+, claims it can pump above 12 million bpd. JP Morgan estimates, however, that Moscow can only ramp up output by 250,000 bpd to 9.5 million bpd over the next three months and will struggle to raise output further due to sanctions. The UAE says its maximum oil production capacity is 4.85 million bpd, and told OPEC that its production of crude alone in April stood at just over 2.9 million bpd, a figure largely endorsed by OPEC's secondary sources. The International Energy Agency, however, estimated the country's crude production at about 3.3 million bpd in April, and says the UAE has the capacity to raise that by a further 1 million bpd. BNP Paribas sees UAE output even higher at 3.5-4.0 million bpd. 'I think spare capacity is significantly lower than what's often quoted,' said BNP analyst Aldo Spanjer. The difference in ability to raise production has already created tensions inside OPEC+. Saudi Arabia favours unwinding cuts of about 800,000 bpd by the end of October, sources have told Reuters. At their last meeting, Russia along with Oman and Algeria expressed support for pausing a hike for July.
Reuters
07-05-2025
- Business
- Reuters
Emerson Electric raises annual profit forecast on automation services demand
May 7 (Reuters) - Emerson Electric (EMR.N), opens new tab raised its full-year profit forecast on Wednesday on the back of strong demand for its automation services and products that also helped the company report second-quarter earnings ahead of Wall Street estimates. The engineering services firm's shares jumped more than 3% in premarket trading. The Reuters Power Up newsletter provides everything you need to know about the global energy industry. Sign up here. Demand for industrial components and automation services has been driven by investments across sectors including chemicals, energy transition and mining. "First-half performance and ability to navigate the tariff environment give us the confidence to update our 2025 outlook," Emerson CEO Lal Karsanbhai said. The company now expects full-year adjusted earnings per share between $5.90 and $6.05, compared with its prior forecast range of $5.85 to $6.05. Analysts are expecting an annual profit of $5.91 per share, according to data compiled by LSEG. Emerson also raised its forecast for net sales to grow about 4% from its prior expectation of an increase of 1.5% to 3.5%. On an adjusted basis, the company earned $1.48 per share in the second quarter, beating estimates of $1.41. Net sales of $4.43 billion also beat expectations of $4.38 billion.
Reuters
07-05-2025
- Business
- Reuters
Harbour energy to slash its UK workforce by 25%, company says
LONDON, May 7 (Reuters) - Oil and gas producer Harbour Energy (HBR.L), opens new tab is set to cut 250 jobs, approximately 25% of the workforce at its UK unit based in Aberdeen, the company said in a statement on Wednesday. Harbour, the largest British North Sea oil and gas producer, said the cuts were necessary because of lower investment as a result of the UK government's policies towards the North Sea fossil fuel industry. The Reuters Power Up newsletter provides everything you need to know about the global energy industry. Sign up here.
Reuters
07-05-2025
- Business
- Reuters
NiSource beats first-quarter profit estimates on robust power demand
May 7 (Reuters) - U.S. electric and gas utility NiSource (NI.N), opens new tab beat Wall Street estimates for first-quarter profit on Wednesday, driven by strong demand for power. Utilities continue to benefit from rising electricity usage - expected to reach record highs in 2025 and 2026, according to the U.S. Energy Information Administration - driven by surging power demand from data centers looking to match Big Tech's AI ambitions. The Reuters Power Up newsletter provides everything you need to know about the global energy industry. Sign up here. In addition to the data centers, residences and commercial businesses have been using more electricity for transportation and heating, which has further increased demand for power. "Despite market conditions and other forces beyond our control, the longevity of our plan is enduring and our investments are resilient," said CEO Lloyd Yates. Across six states, the utility company serves natural gas to around 3.3 million customers through its Columbia Gas unit and electricity to 500,000 customers through its NIPSCO unit. Quarterly total operating revenue for NiSource was $2.18 billion, compared with $1.71 billion a year earlier. Its total customer revenue, which includes residential, commercial and industrial buyers at its electric and gas segments, increased 30.8% from a year earlier to $2.15 billion. However, persistently high interest rates increased borrowing costs for power companies, which often require substantial capital for expenses such as maintaining and upgrading the electric grid. NiSource said interest expenses rose 14.2% from a year earlier to $132.8 million in the reported quarter, while operating expenses were up nearly 27%. The company reaffirmed its forecast for adjusted earnings to be between $1.85 and $1.89 per share. Analysts' average estimate was $1.87 per share. The Merrillville, Indiana-based company reported a quarterly profit of 98 cents per share, compared with analysts' average estimate of 90 cents according to data compiled by LSEG.
Reuters
07-05-2025
- Business
- Reuters
TurkStream gas pipeline could slow EU, Russia decoupling: Vladimirov
May 7 - The European Commission announced a revised roadmap to fully wean itself off Russian energy by the end of 2027, but some parts of Europe are moving in the opposite direction. Russian LNG sales in the continent are actually rising, and gas supply through the TurkStream pipeline has not only survived but expanded. The Reuters Power Up newsletter provides everything you need to know about the global energy industry. Sign up here. It's true that Russian pipeline gas exports to the European Union have plummeted since the start of the war in Ukraine, falling from over 155 billion cubic metres (bcm) in 2021 to under 40 bcm in 2024. But in the same period, Russian LNG sales to the EU nearly doubled to around 25 bcm, with France, Belgium, Spain and Netherlands buying over 90% of the volumes. The ban on Russian LNG transhipment via EU ports has actually boosted direct spot gas purchases. This trend should reverse under the new EU Roadmap as it calls for member states to develop detailed national plans for phasing out Russian gas in the next two and a half years. However, the Commission provides no clear legal framework for enforcing these targets. Meanwhile, the Turkstream pipeline, which runs under the Black Sea to Turkey and on to Southeast Europe, accounts for all of the Russian energy giant Gazprom's remaining pipeline exports to the bloc. In Q1, 2025, volumes through TurkStream's European section rose 16% year-on-year to around 4.5 bcm, driven by higher demand in Hungary and Slovakia. Since Turkstream's launch, more than 63 bcm of Russian gas has reached the EU, generating over 20 billion euros ($22.72 billion) for Gazprom, while supplying gas to Greece, Bulgaria, Serbia, Romania, Moldova, North Macedonia, Bosnia, Hungary and Slovakia. In 2025, Hungary has emerged as the leading importer, with Russian gas imports expected to rise to around 8 bcm, up from 6 bcm in 2023. Slovakia, which previously received its Russian gas via Ukraine, has begun importing from TurkStream, facilitated by Hungary's expansion of the cross-border transmission capacity from 2.6 to 3.5 bcm/year. Slovakia's state gas supplier, SPP, confirmed in March 2025 that it would expand its long-term contract with Gazprom, valid until 2034. These flows are driven by steep Gazprom discounts. Based on EU custom-based data, Russian pipeline gas sold to EU buyers via TurkStream in 2024 was priced 13–15% lower than alternative options. ALTERNATIVE ENERGY Alternative gas supply options exist. U.S. LNG exports will surge 15% in 2025, adding 22.5 bcm, enough to replace Russian pipeline gas and cut the U.S. trade deficit with the EU by up to $10 billion per year. These exports could reach LNG terminals in Turkey, Greece, Croatia and Italy, and then flow throughout Central and Easten Europe (CEE) via interconnectors with over 30 bcm/year in capacity. However, swapping overdependence from one supplier to another may also be risky at a time when U.S. leadership is becoming less reliable. Additionally, U.S. LNG exporters charge Europe more than North American buyers and demand 20–25-year contracts, clashing with the EU's decarbonisation goals. CEE governments, notably Hungary and Slovakia, have opposed the phaseout of Russian gas, claiming it will drastically increase energy costs and undermine Europe's competitiveness. Yet, a closer look at market differentials and gas company financial reports suggests that the Russian gas price discount does not reach consumers and instead flows to Gazprom-linked suppliers. To encourage this process of supply diversification, the EU could ban spot gas purchases immediately as they do not require long-term gas contract modifications. The deadlines for phasing out all Russian gas imports in the Roadmap could also be brought forward to the end of 2025, and the EU could make the target binding. This process could trigger force majeure clauses in long-term Gazprom contracts, though legal experts warn courts may not accept the argument. Still, a better strategy may be to claim that the seismic geopolitical changes since 2022 are forcing companies to renegotiate or cancel their contracts. To avoid bottlenecks, the European Commission's roadmap commits to help coordinate LNG imports, strengthen the gas demand aggregation mechanism and use interconnections more efficiently to reach landlocked countries. The EU also wants to oblige member states to implement a certification and traceability system for gas origin, requiring all suppliers to disclose the source of gas entering the EU, and ban Russian gas deliveries. If the EU is serious about truly decoupling from Russian energy, then TurkStream needs to be addressed. The bloc must also rethink energy security to avoid overreliance on any one power. The new roadmap gives Brussels the legal and policy tools to act, but without political resolve, dependency could quietly persist. (The views expressed here are those of Martin Vladimirov, the Director of the Geoeconomics Program of the Center for the Study of Democracy (CSD). ($1 = 0.8801 euros) Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
