OPEC+ has announced its decision to further raise its collective production target starting in August, a move set to boost global oil supply as exports gradually resume through the Strait of Hormuz and prices retreat.
The organization of oil-producing nations, in a virtual meeting, agreed to increase its output quota by 188,000 barrels per day from August, continuing a pattern of similar incremental hikes seen in June and July.
Since April, the seven core members of OPEC+—including key OPEC nations and allies like Russia—have cumulatively increased their production quotas by nearly 800,000 barrels per day through July.
However, the actual production increases from major members such as Saudi Arabia, Kuwait, and Iraq have largely remained theoretical, as the closure of the Strait of Hormuz to tanker traffic, a consequence of the US-Israel conflict with Iran, severely hampered exports.
Production Resumes
According to OPEC data, the group's output fell to 33.13 million barrels per day in May, down from 42.77 million in February. Production began recovering in June, aided by US efforts to assist the UAE and other OPEC+ nations in boosting exports, though levels remain below pre-conflict benchmarks.
Despite ongoing supply disruptions, oil prices have declined to pre-war levels. This is attributed to reduced import volumes, increased exports from non-Middle Eastern producers, and the record release of strategic petroleum reserves coordinated by the International Energy Agency.
Giovanni Staunovo, an analyst at UBS, commented, "As widely anticipated, the group continues to gradually unwind its production cuts. The immediate focus will remain on how many tankers can successfully transit the Strait of Hormuz and how swiftly demand and crude imports can recover."
A memorandum of understanding between Washington and Tehran aimed at ending the conflict has also bolstered trader confidence that supply will eventually normalize.
Iraq Pressures for Higher Quota
On Friday, Brent crude traded around $72 per barrel, a significant drop from recent highs above $120 and a return to the trading range seen before the US-Israel attacks on Iran on February 28.
Beyond setting the production target, OPEC+ faces other challenges, including the UAE's departure from the group and Iraq's expressed desire for a higher production quota.
While OPEC+ comprises 21 member nations, including Iran, only seven countries—plus the UAE before its exit—have participated in the monthly production management in recent years.
These seven producers—Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan, and Oman—are now increasing output as part of the phased unwinding of the 1.65 million barrel-per-day production cut agreement reached in 2023, when the UAE was still a member.
The UAE exited the alliance at the end of April to better align its production capacity with its output, freeing itself from the group's production constraints.
Calculations indicate that, starting in August and accounting for the UAE's exit on May 1, these seven core members still have approximately 379,000 barrels per day of the original cut to restore to the market.
With the August increase now finalized, if they approve another hike of similar magnitude (around 188,000 barrels per day) at their next meeting on August 2, they will have completely reversed the 2023 production cut agreement.
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