OPEC+ approves fourth oil output quota hike since Hormuz closure

LONDON: OPEC+ agreed on Sunday a fourth increase in its oil output targets in as many months, ‌even though the U.S. war with Iran is still preventing several of the group’s members from pumping more.

The war has cut oil flows via the Strait of Hormuz, creating the world’s biggest-ever supply crisis as key OPEC+ members including Saudi Arabia have been unable to supply customers in full since the end of February. The crisis ​for OPEC+ deepened when the United Arab Emirates left the Organization of the Petroleum Exporting Countries after almost 60 years.

Seven core ​members of OPEC+, which groups OPEC and allied producers including Russia, have increased their output quotas from April ⁠to June by almost 600,000 barrels per day.

In reality, the group’s production has collapsed due to export cuts by Gulf members, averaging 33.19 million ​bpd in April compared with 42.77 million in February, according to OPEC figures.

IMPACT OF PRODUCTION TARGET INCREASE

On Sunday, the seven members decided to increase ​targets by 188,000 bpd from July, OPEC said in a statement. This is the same as the June hike, which was adjusted down from monthly increases of 206,000 bpd in May and April to take into account the UAE exit.

Iraq’s oil output quota will increase by 26,000 bpd from July under the agreement, an oil ​ministry spokesperson told Iraq’s state news agency.

“An OPEC+ production increase means very little while the Strait of Hormuz remains closed,” said Jorge Leon, an ​analyst at Rystad and a former OPEC official.

“When the Strait of Hormuz reopens, the market could move very quickly from fear of shortage to fear of ‌surplus.”

On Friday, ⁠oil prices fell to around $93 a barrel as traders gained confidence that renewed conflict between the U.S. and Iran was growing less likely. Prices were close to $72 before the war began.

OPEC+ ALMOST DONE WITH UNWINDING 2023 OUTPUT CUT

The seven countries are increasing production as part of the gradual unwinding of a 1.65 million bpd production cut that the group, which at the time included UAE, agreed in 2023.

From July, the seven have about 567,000 ​bpd of the original cut to ​return to the market, taking ⁠into account the UAE exit from May 1, according to Reuters calculations.

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That would mean the rest of the cut will be unwound by the end of September should OPEC+ stick to monthly hikes of about 188,000 ​bpd for August and September.

The seven of 21 OPEC+ members who met on Sunday are Saudi Arabia, ​Iraq, Kuwait, Algeria, Kazakhstan, ⁠Russia and Oman.

In recent years, only the seven plus the UAE – when it was a member – have been involved in the group’s output policy decisions.

In a separate meeting on Sunday of all OPEC+ members, the ministers made no change to the group-wide output policy that is in place until the ⁠end of 2026, ​OPEC+ said in another statement.

OPEC+ is carrying out a review of its members’ oil production ​capacity to be used as a reference for 2027 production baselines, from which quotas are set.

The group on Sunday affirmed the importance of completing the assessment, the statement said.