OPEC+ likely to agree on August oil output increase

LONDON: OPEC+ is set to agree on Sunday to another increase in oil output targets starting from August, according to sources with knowledge of the matter, adding to global supply amid falling oil prices driven by the gradual reopening of the Strait of Hormuz for oil exports.

The alliance of oil-producing nations has agreed in principle to increase production quotas by 188,000 barrels per day from August. This comes on top of similar increases implemented for June and July, two sources familiar with OPEC+ thinking confirmed ahead of the group’s online meeting scheduled for later on Sunday.

Seven core members of OPEC+, which groups the Organization of the Petroleum Exporting Countries and allied producers including Russia, have already increased their output quotas from April through July by nearly 800,000 barrels per day.

However, the planned increases have remained largely on paper due to the US-Israeli war on Iran, which effectively closed the Strait of Hormuz to tanker traffic, blocking exports from key OPEC+ members such as Saudi Arabia, Kuwait, and Iraq.

According to official OPEC data, the alliance’s total output plummeted to 33.13 million barrels per day in May, down sharply from 42.77 million barrels per day in February. Production began a slight recovery in June following US efforts to help the United Arab Emirates and other OPEC+ nations export more oil, though output remains well below pre-war levels.

Despite these ongoing supply disruptions, international oil prices have dropped back to pre-war levels. The market has faced downward pressure from lower Chinese imports, rising exports from non-Middle East producers, and a record global strategic stock release coordinated by the International Energy Agency.

A memorandum of understanding aimed at ending the conflict has further convinced energy traders that global oil supplies will ultimately return to normal volumes.

Consequently, Brent crude prices traded near $72 per barrel on Friday, dropping significantly from recent peaks of more than $120 per barrel. This brings prices back to the exact levels traded just before the U.S. and Israel launched attacks on Iran on February 28.

Beyond finalizing these new production targets, OPEC+ is navigating internal instability after the United Arab Emirates officially left the alliance and Iraq signaled its desire for higher individual quotas.

The remaining seven core producers—Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan, and Oman—are currently boosting output as part of a phased rollback of a 1.65 million barrels per day supply cut originally agreed upon in 2023, back when the UAE was still a member.

The UAE quit the oil alliance in late April to align its production capacity more freely, escaping the strict output restraints imposed by the group.

According to calculations, the seven producers have roughly 379,000 barrels per day of the original supply cut left to return to the market from August, factoring in the UAE’s exit on May 1. If the group maintains its current pace of monthly increases, it will completely unwind the remainder of the historic supply cut by the end of September.