OPEC+ agreed a further increase in output targets from August, the group said in a statement on Sunday, adding to global supply at a time when oil prices are falling due to the gradual reopening of the Strait of Hormuz for oil exports.
The oil-producing cartel, which recently lost the UAE as a core member, agreed during an online meeting to increase quotas by 188,000 barrels per day from August, on top of similar increases for June and July. That said, the producers reserved the right to increase, pause, or reverse the phase-out, including the November 2023 cuts already unwound. Furthermore, every country that overproduced since January 2024 still has to fully compensate for it, tracked monthly by the JMMC.
The seven core members of OPEC+, which groups OPEC and allied producers including Russia, have hiked their output quotas from April through July by almost 800,000 bpd. Yet the increase has remained largely on paper because of the U.S.-Israeli war on Iran, which closed the Strait of Hormuz to tanker traffic for some of the most important OPEC+ members, including Saudi Arabia, Kuwait and Iraq.
According to Reuters, OPEC+ output fell to 33.13 million bpd in May, according to OPEC data, from 42.77 million bpd in February. It began to recover in June thanks to U.S. efforts to help the UAE and other OPEC+ nations export more oil, but is still below pre-war levels.
Despite persisting supply disruptions, oil prices have returned to pre-war levels, pressured by sharply lower Chinese imports, higher exports from non-Middle East producers, and a record global strategic stock release coordinated by the International Energy Agency.
"The group of seven kept unwinding their production cuts as widely expected," UBS analyst Giovanni Staunovo said. "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."
A memorandum of understanding between Washington and Tehran to end the war, which has been breached on several occasions but is still holding, has also helped convince traders that supply will ultimately return to normal levels.
Brent crude prices traded near $72 per barrel on Friday, down from recent peaks of more than $120 per barrel and back to levels traded just before the U.S. and Israel attacked Iran on February 28.
Besides agreeing production targets, OPEC+ is also facing other challenges after the United Arab Emirates left the group and Iraq signaled it wants higher quotas.
OPEC+ includes 21 members including Iran, but in recent years only the seven nations - and the UAE until its departure - have been involved in monthly production management. Those seven producers, Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan and Oman, are boosting output as part of the phased rollback of a 1.65 million bpd supply cut agreed in 2023, when the group still included the UAE.
In a stunning twist, the UAE quit the alliance in late April because it wanted to align its capacity more closely with its production, free of production restraints imposed by the group. From August, taking into account the UAE's exit from May 1, the seven core members will still have about 379,000 bpd of the original cut to return to the market, according to Reuters calculations.
With the August increase now decided, they will have fully unwound the 2023 cut if they make one more hike of around the same size for September at their next meeting on August 2.