OPEC’s crude oil production faced a historic collapse in April, hitting levels not seen in over 25 years. The cartel managed to pump only 20.04 million barrels per day, a reduction of 830,000 barrels per day from March. This decline was primarily driven by the ongoing closure of the Strait of Hormuz, a critical chokepoint through which a significant portion of global oil trade passes.
This figure marks OPEC's lowest output since at least 2000, excluding any changes in membership. When comparing it to previous crises, this is notable since OPEC was producing more oil during the significant demand crash of the COVID-19 pandemic in 2020.
The previous month, March, recorded an unprecedented drop of 7.5 million barrels per day, which was the steepest decline in OPEC's history. The additional decline in April confirms that the issues damaging oil output persist.
The closure of the Strait of Hormuz, instigated by heightened military operations, has critically impacted oil exports from major producers in the Persian Gulf. Saudi Arabia, Iraq, and Kuwait were heavily affected, with Kuwait suffering the most due to its reliance on these vital Gulf export routes.
Despite the announcement of a ceasefire on April 7, OPEC's output continued to drop throughout the month, demonstrating that the situation remained dire.
Surprisingly, not all members of OPEC felt the consequences equally. The United Arab Emirates, Venezuela, and Libya managed to increase their production in April. This is in part due to the UAE's exit from OPEC, allowing it to utilize alternative export routes that circumvent the Strait of Hormuz. Venezuela and Libya, being thousands of miles away from the Persian Gulf, were less affected by the disruptions.
As the supply crunch became apparent, oil prices surged to nearly $120 per barrel. With the ceasefire failing to restore production levels, the market's trepidation is likely justified.
Investors need to take heed of the implications of this production shortfall, which amounts to almost 8.3 million barrels per day lost in March and April combined. The potential increases from Venezuela and Libya will not cover this gap. While strategic petroleum reserve releases may offer temporary relief, with the U.S. reserves already diminished, significant recovery is unlikely without a reopening of the Strait of Hormuz.