Oil traders are increasingly focused on what happens after the Israel-Iran conflict rather than the latest geopolitical developments. While OPEC+ approved another production increase for July, the immediate impact remains limited because export disruptions continue to constrain Middle East supply.
BNN Bloomberg spoke with Rebecca Babin, senior energy trader and managing director at CIBC Private Wealth, who said investors are largely pricing in a diplomatic resolution and are increasingly focused on how quickly OPEC producers can restore output once export routes normalize.
Key Takeaways
- OPEC+ approved a 188,000-barrel-per-day production increase for July, but export disruptions mean the increase remains largely symbolic in the near term.
- Markets are increasingly looking beyond the conflict and pricing in a future return of supply from major producers such as Saudi Arabia and the UAE.
- China has helped offset supply disruptions by sharply reducing crude imports, drawing inventories and slowing demand growth.
- Inventory depletion is becoming a key risk factor, with traders watching whether diplomacy can resolve the conflict before stockpiles tighten further.
- Markets would likely react more aggressively if the conflict expands to threaten major shipping routes or results in direct U.S. military casualties.
Read the full transcript below:
LINDSAY: At their meeting on Sunday, major OPEC members agreed to a symbolic increase in their oil output for July. The move is symbolic because the closure of the Strait of Hormuz will prevent them from actually increasing exports from the Middle East. Joining us now is Rebecca Babin, senior energy trader and managing director at CIBC Private Wealth. Good morning. Thanks so much for joining us.
REBECCA: Thank you so much for having me.
LINDSAY: So, this increase is only theoretical. What is the purpose of the increase if it is only theoretical?
REBECCA: So, I think the purpose of having the meeting and the increase is twofold. One is to kind of give the market a signal that OPEC, after the departure — the very high-profile departure — of the UAE, is still a functioning group that continues to monitor the market, make changes and kind of stay cohesive. It’s more of a signal that this is not a group that’s falling apart, but one that will continue to play an active role in market management.
Two, I think the increases, although, at this point, as you mentioned, they’re not going to translate into barrels on the market, do give the market the indication that, when things do resume — which they cannot stay this way indefinitely — there will be increases in production coming from OPEC nations.
Now, I would assume the market right now is looking through these numbers and saying, well, when things do resume, almost everyone who can will be pumping significantly higher than quota initially, at least to recover some of the lost supply, if they can. The key is who can, and I think that’s the key.
When you look at OPEC, with the UAE having left, it’s really Saudi Arabia with the spare capacity. Their quota right now is around nine million barrels. They have 12 million barrels of potential spare capacity, so they could ramp up should they choose to.
So, I think there’s a lot going on behind the symbolism of the meeting to give the market the right indication of what their plan is. They do not plan to just ramp up indiscriminately, as the market might guess. They’re going to be measured about it and give the market the indication that they are still very much a functioning group.
LINDSAY: It’s 188,000 barrels a day in terms of that increase. How significant is that?
REBECCA: It’s not. We’re looking at a supply loss of between 10 million and 12 million barrels a day from the Strait of Hormuz being effectively closed, so that is really not a number that’s going to matter.
Again, the spare-capacity numbers are what matter. Saudi Arabia could bring back an additional two million barrels a day. With the UAE off and no longer under a quota system, the market is expecting it to bring back 500,000 to one million barrels a day of spare capacity above what it was producing prior to the conflict fairly quickly.
I think that’s a really key point here. The market is looking through this event to what happens next when Hormuz is open. How much of a supply increase can we expect from OPEC nations?
It’s not huge from anybody outside of the UAE and Saudi Arabia, but those are meaningful barrels. It could be three million to four-and-a-half million barrels of additional supply relative to pre-conflict levels.
I think that’s part of the reason that, when you look out on the curve, you don’t see as much of a reaction as the market might have expected. It might be overplaying its hand in terms of estimating that supply coming back and underestimating how much excess demand might be out there to refill these inventories, but that’s what the market is focused on at the moment.
LINDSAY: So, how will this work then? If the Strait of Hormuz does reopen, let’s say hypothetically next week — I know you’re laughing — but when things resume, will that increase that OPEC has announced actually automatically kick in, even though it’s just symbolic right now?
REBECCA: So, theoretically, yes. They would be able to go to those quota levels.
But what we really need to keep in perspective here is that it’s going to be a road that takes several months for some of these countries. If we look at Iraq, they’ve had to shut in a tremendous amount of production. They may have damage to their fields at this point. The same with Kuwait.
Some of the energy ministers have been talking about several months to get this up and back to the point where these levels of production will even be relevant as part of the conversation.
Again, we’re talking about months, not years. Is it three months? Is it six months? Hard to gauge. We don’t know how much damage has been done.
But Saudi Arabia likely can bring back production very quickly, and they’re the biggest producer with the most spare capacity. So, that’s the one to watch. The UAE also can probably get things up and running once the strait opens in weeks, not months. It’s the smaller countries that will have a harder time getting there.
LINDSAY: Got it. Okay. In the meantime, how does the latest Israel-Iran exchange shift your base case for escalation, and what would it take for markets to finally price in a non-diplomatic outcome to all of this?
REBECCA: It’s a great question.
I think, as you can see from the market reaction this morning, we were up four per cent in crude overnight. We’re back down to around one per cent to one-and-a-half per cent at the moment.
What’s happened over the weekend doesn’t really shift the base case for myself or, as you can see, for market participants.
It’s hard to kind of wrap your head around that, but we’ve had these moving goalposts of where the red lines are. The rhetoric we’ve seen following these events indicates that no red lines have been crossed from either side at this point to change the conviction that we’re on a diplomatic path.
Now, what changes that? I think two things.
One thing that’s been mentioned by President Trump is that if a U.S. military service member is killed, that would be a red line.
I think the second red line that would really incite other Gulf nations is if the Houthis — which did threaten to become more involved in this conflict over the weekend — actually do start targeting ships in the Red Sea.
That’s been a key release valve for where flows have been rerouted, and if that starts to become more constrained, we will see a market reaction. I think that’s a red line for other Middle Eastern countries.
Those are the two things I’m looking at for what changes the base case of a diplomatic outcome.
For now, it seems that the U.S. is very convicted and dedicated to achieving a diplomatic outcome. It’s just yet to be determined if it actually works out, or how long it takes. I think the “how long it takes” is the critical question.
LINDSAY: Right. Because I wonder if the market’s underpricing the risk that diplomacy arrives after inventories tighten rather than before.
REBECCA: Well, that’s the question the market has had a really hard time answering. It’s depletion versus diplomacy.
We’re in a race right now, and it’s kind of the tortoise and the hare. Diplomacy got out to a head start. It’s got rhetoric on its side. Depletion has come slower, and there have been a couple of buffers there.
If you look at Chinese imports, which I think is the missing piece of the puzzle as to why prices haven’t moved meaningfully higher and why the market doesn’t look as tight as you would think, given the extent of the supply disruption, China has really decreased its imports from around 11.5 million to 12 million barrels a day to seven million or eight million.
Kepler released data suggesting May imports may have been as low as 6.5 million barrels a day. That’s a meaningful change to the market and has helped buffer supply.
Where is China finding the flexibility to keep its system running? I think they’re destocking pretty aggressively. They built up their strategic petroleum reserves last year. I think they’re rationing demand, and I think there has been some crude-to-coal switching and electric-vehicle adoption that has all come into play to take the heat out of how much supply has been lost.
The timeline has continued to move back. It was originally thought that by mid-May we would be at tank bottoms. That’s shifted now to mid-June, maybe July, given how China has managed this situation.
I think we’re looking at a late-June or early-July inventory-drawdown situation that meaningfully tightens the market, but we’ll continue to need to watch how countries manage around this and the demand destruction that could potentially come.
LINDSAY: Okay. Well, lots to watch for. Rebecca Babin, senior energy trader and managing director at CIBC Private Wealth. So good to have you join us. Thank you.
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This BNN Bloomberg summary and transcript of the June 8, 2026 interview with Rebecca Babin are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
