OPEC+ Decides on Additional Oil Output Increase as Transit Through the Strait of Hormuz Resumes

[Financial News]  The Organization of the Petroleum Exporting Countries (OPEC) and major non-OPEC oil producers, including Russia, known as OPEC Plus (OPEC+), have agreed to further raise their crude oil production targets starting in August. The decision comes as oil exports resume with the gradual reopening of the Strait of Hormuz and global oil prices continue to fall.
At a virtual meeting on the 5th local time, OPEC+ announced in a statement that it had agreed to increase daily production quotas by 188,000 barrels from August. The move extends the output increase trend seen in June and July. The seven key OPEC+ producers, including Russia, will have raised their combined production quotas by nearly 800,000 barrels from April through July.
Until now, OPEC+'s output increase agreements had existed largely on paper because of the conflict between the West and Iran. The Strait of Hormuz, a key export route for major producers such as Saudi Arabia, the State of Kuwait, and Iraq, had faced disruptions to tanker traffic.
According to OPEC data, OPEC+'s output, which reached 42.77 million barrels per day in February, plunged to 33.13 million barrels per day in May, when the conflict was at its peak. It began to recover in June, helped by U.S. efforts to support oil exports from the United Arab Emirates (UAE) and other countries, but it still remains below pre-conflict levels.
Despite concerns over supply disruptions, international oil prices have returned to pre-conflict levels. Lower crude imports by China, higher exports from producers outside the Middle East, and the largest-ever release of strategic reserves led by the International Energy Agency (IEA) all helped push prices down. Recent reports that the United States and Iran signed a Memorandum of Understanding (MOU) to end the war also signaled a normalization of supply to the market and helped stabilize prices.
As of the 3rd, Brent crude oil was trading around $72 per barrel, sharply down from the peak of around $120 recorded immediately after the conflict broke out in late February.
Giovanni Staunovo, an analyst at UBS AG (UBS), said, "The key seven countries are continuing to unwind their production cuts as expected." He added, "In the short term, the key questions are how many tankers can safely pass through the Strait of Hormuz and how quickly China's oil demand will recover."
Meanwhile, OPEC+ faces internal challenges beyond the output increase. The UAE recently withdrew from the alliance, and Iraq has also called for a larger production quota.
OPEC+ currently has 21 member countries, including Iran. However, in recent years, actual monthly production management has been centered on the seven key producers, including Saudi Arabia and Russia, as well as the UAE before its withdrawal. These seven countries are gradually rolling back the 1.65 million barrels per day in production cuts agreed in 2023.
The UAE had previously announced its withdrawal from the alliance at the end of April in order to fully utilize its own production capacity and escape the production cut restrictions.
According to foreign media reports, even after accounting for the UAE's withdrawal, the seven key producers will still have about 379,000 barrels per day in remaining cuts to return to the market after the August increase. If these producers decide on a similar additional increase for September at their next meeting on August 2, the 2023 production cuts will be fully reversed.

jjyoon@fnnews.com Yoon Jae-jun Reporter