Opec+ Approves Third Oil Output Increase Post-Hormuz Closure
OPEC+ reached an agreement on Sunday to implement a modest increase in oil output for June. However, this increase is expected to remain largely theoretical as long as the ongoing conflict in Iran continues to disrupt oil supplies in the Gulf via the Strait of Hormuz. Seven OPEC+ nations are set to elevate their oil output targets by 188,000 barrels per day in June, marking the third successive monthly increase, as stated by OPEC+ following an online meeting. The increase mirrors the agreement established for May, excluding the portion attributed to the United Arab Emirates, which exited the group on May 1.
The action aims to demonstrate the group’s preparedness to increase supplies once hostilities cease and indicates that OPEC+ is continuing with a standard operational strategy, notwithstanding the UAE’s exit from OPEC+, according to sources and analysts. “OPEC+ is sending a two-layer message to the market: continuity despite the UAE’s exit, and control despite limited physical impact,” stated Jorge Leon. “Although output appears to be rising in reports, the actual effect on physical supply is still quite constrained due to the limitations posed by the Strait of Hormuz.” This is less about increasing production and more about indicating that OPEC+ remains in control. Under the agreement, the quota for Saudi Arabia, the leading producer within OPEC+, will increase to 10.291 million bpd in June, significantly exceeding its current production levels. In March, the kingdom communicated an actual production figure of 7.76 million bpd to OPEC.
The seven members convened on Sunday included Saudi Arabia, Iraq, Kuwait, Algeria, Kazakhstan, Russia, and Oman. Following the departure of the UAE, OPEC+ now comprises 21 members, which includes Iran. In recent years, the monthly production decisions have been limited to just seven nations along with the UAE. The increase remains predominantly symbolic until the reopening of Hormuz. The conflict in Iran, initiated on February 28, alongside the subsequent closure of the Hormuz strait, has significantly constrained exports from OPEC+ nations, including Saudi Arabia, Iraq, Kuwait, and the UAE. Prior to the conflict, these producers represented the sole nations within the group capable of increasing production levels.
Oil executives from the Gulf and global oil traders have indicated that even after the reopening of shipping through the Strait of Hormuz, it will require several weeks, if not months, for flows to return to normal levels. The supply disruption has driven oil prices to a four-year peak exceeding $125 per barrel, as analysts start to forecast extensive jet fuel shortages within one to two months, alongside an increase in global inflation. In March, crude oil production from all OPEC+ members averaged 35.06 million barrels per day, reflecting a decrease of 7.70 million barrels per day compared to February, according to a report released by OPEC last month. The most significant reductions were attributed to Iraq and Saudi Arabia, which faced limitations on their export capabilities. The statement indicated that the seven OPEC+ members are scheduled to convene once more on June 7.
