OPEC+ Agrees to Further Oil Output Hike as Strait of Hormuz Exports Recover

OPEC+ has agreed to further increase its oil output targets starting in August, the group announced Sunday. This decision will add to global supply at a time when oil prices are declining due to the gradual reopening of the Strait of Hormuz for oil exports.

The oil-producing alliance will increase quotas by 188,000 barrels per day from August. This follows similar increases implemented in June and July. The seven core members of OPEC+, which comprises OPEC and allied producers including Russia, had already increased their output quotas by nearly 800,000 barrels per day between April and July.

However, the actual increase in output has largely remained theoretical. The conflict involving the United States and Iran had previously closed the Strait of Hormuz to tanker traffic for key OPEC+ members such as Saudi Arabia, Kuwait, and Iraq. OPEC data indicated that the group's output fell to 33.13 million barrels per day in May from 42.77 million barrels per day in February. While production began to recover in June, aided by U.S. efforts to help the United Arab Emirates and other OPEC+ nations increase their oil exports, levels remain below pre-conflict figures.

Despite ongoing supply disruptions, oil prices have retreated to pre-conflict levels. This decline is attributed to factors including lower Chinese imports, increased exports from non-Middle Eastern producers, and a record release of oil from strategic reserves coordinated by the International Energy Agency. Brent crude prices were trading around $72 per barrel on Friday, down from peaks exceeding $120 per barrel and returning to levels seen just before the U.S. and Iran initiated attacks on February 28.

Analysts suggest that the near-term market focus will be on the volume of oil tankers successfully navigating the Strait of Hormuz and the speed of recovery in demand and Chinese crude imports. A memorandum of understanding between Washington and Tehran aimed at ending hostilities has also contributed to market confidence that supply will eventually normalize.

In addition to production targets, OPEC+ is navigating other challenges. The United Arab Emirates recently departed the group, and Iraq has indicated a desire for higher quotas. The UAE left the alliance in late April, seeking to align its production capacity more closely with its output without the group's restraints. From August, accounting for the UAE's exit on May 1, the seven core members will still have approximately 379,000 barrels per day of their original 2023 cut to return to the market. With the August increase decided, they would need one more similar hike in September to fully unwind the 2023 production cut, according to Reuters calculations. Their next meeting is scheduled for August 2.