OPEC+ approves further output hike as Hormuz exports recover, oil falls
The fifth consecutive OPEC+ supply increase lands as the market shifts from a wartime supply squeeze toward fears of a short-term glut, with Brent back near pre-war levels around $72 a barrel. Traders are now focused less on the group’s headline quotas, which have proven largely symbolic while Gulf exports were curtailed, and more on the pace of the physical recovery in Hormuz shipping and Chinese import demand. The prospect of the UAE and a re-emerging Iran both ramping up exports outside the group’s constraints adds a further bearish supply signal, while unresolved questions over the strait’s future governance keep a layer of geopolitical risk premium in place.
OPEC+ agreed to raise output by 188,000 bpd from August, a fifth straight increase, as Hormuz shipping traffic recovers and Brent falls near $72, back to pre-war levels, while Iraq presses the group for higher quotas after the UAE’s exit.
Summary:
- OPEC+ agreed to raise output targets by 188,000 bpd from August, a fifth consecutive monthly increase
- The seven participating members, Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan and Oman, are unwinding a 1.65 million bpd cut agreed in 2023
- OPEC+ output fell to 33.13 million bpd in May from 42.77 million bpd in February before beginning to recover in June
- Brent crude traded near $72 a barrel, down from recent peaks above $120 and back to levels seen before the U.S. and Israel attacked Iran on February 28
- Strait of Hormuz traffic has stabilised at an average of about 40 vessels a day as of July 2, still short of a full recovery
- Iraq has signalled it wants higher quotas after the UAE’s departure from the group in late April, while the seven core members are due to meet again on August 2
OPEC+ has agreed to raise oil production targets for a fifth consecutive month, adding 188,000 barrels per day to the market from August as shipping traffic through the Strait of Hormuz gradually recovers and Gulf producers work to restore output curtailed by the war between the United States and Israel on one side and Iran on the other.
The increase, decided at a virtual meeting on Sunday among the seven core OPEC+ members, Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan and Oman, continues a rollback of the 1.65 million bpd supply cut those countries agreed in 2023, when the group still included the UAE. Taken together, the group’s output targets have risen by almost 800,000 bpd since April, though the increases were largely symbolic for much of that period. The closure of the Strait of Hormuz, which normally carries about a fifth of the world’s oil, and damage to regional energy infrastructure forced major exporters to curb both production and shipments during the conflict. OPEC+ output slumped to 33.13 million bpd in May from 42.77 million bpd in February, only beginning to recover in June with U.S. help in restoring exports from the UAE and other members.
Shipping through the strait has picked up since Washington and Tehran signed an interim agreement in mid-June to halt hostilities, with daily traffic stabilising at an average of about 40 vessels as of July 2, still below pre-war norms and with the strait’s future governance still unresolved. Oil prices have nonetheless fallen back to pre-war levels, with Brent trading near $72 a barrel, pressured by softer Chinese imports, rising exports from producers outside the Middle East and a record coordinated strategic stock release led by the International Energy Agency.
The recovery is reshaping the competitive landscape among producers. The UAE, which left OPEC+ at the end of April to pursue output free of the group’s constraints, is positioning itself to expand capacity over the coming years, while Iran is also ramping up exports after the U.S. lifted its naval blockade and temporarily waived sanctions, with most of that crude still expected to flow to China in the near term. Iraq, meanwhile, is pushing for a larger quota now that the UAE has exited. The scramble among Gulf producers to recoup lost revenue could test the alliance’s cohesion should members push output beyond agreed levels, a dynamic that will be closely watched when the group’s seven core members meet again on August 2 to set production for September.
This article was written by Eamonn Sheridan at investinglive.com.