OPEC+ approves further oil output increase as Hormuz exports start to recover

Highlights:

• OPEC+ to raise production by 188,000 bpd from August
• Gulf exports rise but still below pre-war levels
• Oil prices fall to pre-war levels on glut fears
• Iraq presses OPEC+ for higher quota after UAE exit

OPEC+ has 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 group 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.

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 US-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.

Production begins to recover

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 US 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 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 has also helped convince traders that supply will ultimately return to normal levels.

Iraq pressing for higher quotas

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 US and Israel attacked Iran on 28 February.

Besides agreeing production targets, OPEC+ is also facing other challenges after the United Arab Emirates left the group and Iraq signalled 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.

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 1 May, the seven core members will still have about 379,000 bpd of the original cut to return to the market, according to Reuters calculations.