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OPEC+ agreed on Sunday to a fourth increase in its oil output targets in as many months, even though the U.S. war with Iran is still preventing several of the group’s members from pumping more.
The war has cut oil flows through the Strait of Hormuz, creating the world’s biggest-ever supply crisis, as key OPEC+ members, including Saudi Arabia, have been unable to supply customers in full since the end of February. The crisis for OPEC+ deepened when the United Arab Emirates left the Organization of the Petroleum Exporting Countries after almost 60 years.
Seven core members of OPEC+, which groups OPEC and allied producers including Russia, have increased their output quotas from April to June by almost 600,000 barrels per day.
In reality, the group’s production has collapsed due to export cuts by Gulf members, with production averaging 33.19 million bpd in April, down from 42.77 million in February, according to OPEC figures.
On Sunday, the seven members decided to increase targets by 188,000 bpd from July, OPEC said in a statement. This is the same as the June hike, which was adjusted downward from monthly increases of 206,000 bpd in May and April to account for the UAE’s exit.
“An OPEC+ production increase means very little while the Strait of Hormuz remains closed,” said Jorge Leon, an analyst at Rystad and a former OPEC official.
“When the Strait of Hormuz reopens, the market could move very quickly from fear of shortage to fear of surplus.”
On Friday, Oil prices fell to around $93 a barrel as traders grew confident that renewed conflict between the U.S. and Iran was less likely. Prices were close to $72 before the war began.
Brent crude futures settled at $93.09 a barrel, down $1.94 or 2.04%. U.S. West Texas Intermediate crude finished at $90.54 a barrel, down $2.50, or 2.69%.
OPEC+ almost done with unwinding 2023 output cut
The seven countries are increasing production as part of the gradual unwinding of a 1.65 million bpd production cut that the group, which at the time included UAE, agreed in 2023.
From July, the seven have about 567,000 bpd of the original cut to return to the market, taking into account the UAE exit from May 1, according to Reuters calculations.
That would mean the rest of the cut will be unwound by the end of September should OPEC+ stick to monthly hikes of about 188,000 bpd for August and September.
The seven of 21 OPEC+ members who met on Sunday are Saudi Arabia, Iraq, Kuwait, Algeria, Kazakhstan, Russia, and Oman. In recent years, only the seven plus the UAE when it was a member have been involved in the group’s output policy decisions.
Three other OPEC and OPEC+ meetings, including one of all OPEC+ ministers, were also scheduled for Sunday. The meeting of all OPEC+ ministers is not expected to make any changes to group-wide output policy, OPEC+ sources said earlier on Sunday.
