OPEC+ approves further oil output increase as Strait of Hormuz exports recover
OPEC+ Agrees to Further Increase Output Targets in August
OPEC+ has announced a plan to boost output targets starting in August, a move that will add to global oil supply as prices decline due to the gradual reopening of the Strait of Hormuz for oil exports.
During an online meeting, the oil-producing group agreed to raise quotas by 188,000 barrels per day from August, following similar increases in June and July. This decision comes after core members of OPEC+ have already increased their output quotas by nearly 800,000 bpd from April to July.
Despite these increases, the actual rise in output has been limited due to the US-Israeli conflict with Iran, which disrupted oil exports through the vital Strait of Hormuz for key OPEC+ members like Saudi Arabia, Kuwait, and Iraq.
According to OPEC data, production by OPEC+ fell to 33.13 million bpd in May from 42.77 million bpd in February but started to rebound in June with assistance from the US to facilitate oil exports for UAE and other OPEC+ nations.
Although supply disruptions persist, oil prices have returned to pre-war levels, influenced by various factors such as reduced Chinese imports, increased exports from non-Middle East producers, and a global strategic stock release coordinated by the International Energy Agency.
Analyst Giovanni Staunovo from UBS commented on the group’s decision, stating, “The near-term focus will remain on how many tankers will manage to cross the Strait of Hormuz and how quickly demand and Chinese crude imports recover.”
The recent memorandum of understanding between the US and Iran to end the conflict has also reassured traders that oil supply will eventually return to normal levels.
On Friday, Brent crude prices were trading around $72 per barrel, down from recent highs but back to levels prior to the US and Israel’s attacks on Iran in late February.
Aside from production targets, OPEC+ is facing additional challenges following the departure of the UAE and Iraq’s request for higher quotas.
With the UAE leaving the alliance in April, the seven core members, including Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan, and Oman, are now working towards fully unwinding the 1.65 million bpd supply cut agreed upon in 2023.
After the August increase, the core members will still have approximately 379,000 bpd of the original cut to return to the market, with the possibility of making another hike in September to completely reverse the 2023 cut.
