The conflict has disrupted oil shipments through the Strait of Hormuz, leading to an unprecedented global supply crisis, with key OPEC+ players, such as Saudi Arabia, unable to meet their full customer demands since late February. The situation for OPEC+ worsened when the United Arab Emirates exited the Organisation of the Petroleum Exporting Countries after nearly 60 years.
Seven principal members of OPEC+, which includes OPEC and allied producers like Russia, have raised their production quotas from April to June by nearly 600,000 barrels per day.
In truth, the coalition’s output has significantly declined due to production cuts from Gulf members, averaging 33.19 million bpd in April versus 42.77 million in February, based on OPEC data.
IMPACT OF PRODUCTION TARGET INCREASE
This Sunday, the seven members chose to boost their targets by 188,000 bpd starting in July, as stated by OPEC. This mirrors the adjustment made for June, which was revised down from monthly increases of 206,000 bpd in May and April due to the UAE’s departure.
Iraq’s oil production quota will rise by 26,000 bpd from July according to a spokesperson from the oil ministry, as reported by Iraq’s state news agency.
“An OPEC+ production increase means very little while the Strait of Hormuz remains closed,” noted Jorge Leon, an analyst at Rystad and former OPEC official.
“When the Strait of Hormuz reopens, the market could swiftly shift from fears of shortages to fears of a surplus.”
On Friday, oil prices declined to approximately $93 a barrel, as traders grew more optimistic about the decreasing likelihood of renewed conflict between the US and Iran. Prices had dipped to nearly $72 before the war commenced.
OPEC+ ALMOST DONE WITH UNWINDING 2023 OUTPUT CUT
The seven nations are increasing output as part of the gradual reversal of a 1.65 million bpd production cut agreed upon in 2023 by the group, which at that time included the UAE.
From July, the seven have around 567,000 bpd of the original reduction to reintroduce to the market, factoring in the UAE’s exit as of May 1, according to calculations by Reuters.
This suggests the remaining cut could be fully unwound by the end of September if OPEC+ adheres to monthly increases of roughly 188,000 bpd for August and September.
The seven out of 21 OPEC+ members participating in Sunday’s meeting include Saudi Arabia, Iraq, Kuwait, Algeria, Kazakhstan, Russia, and Oman. Recently, only these seven, along with the UAE—when it was a member—have had a role in the group’s output policy decisions.
In a separate gathering of all OPEC+ members on Sunday, the ministers did not alter the group-wide output policy in place until the end of 2026, OPEC+ stated in another announcement.
OPEC+ is conducting a review of its members’ oil production capacity to serve as a benchmark for the 2027 production baselines from which quotas will be set. The group reaffirmed the significance of completing the assessment, according to the statement.
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