Seven Opec oil producers have agreed to raise their July crude production target by 188,000 barrels per day, the fourth monthly increase, despite supply concerns and oil price volatility driven by the Iran war.
The unwinding of the voluntary cut reflects a business-as-usual approach despite an unprecedented supply shock from the Iranian blockade of the Strait of Hormuz.
Seven core countries of the Opec group – Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria and Oman – agreed to raise production next month and said they remained committed to supporting oil market stability.
“The countries will continue to closely monitor and assess market conditions,” the group said on Sunday.
In their efforts to support the market, the seven members “reaffirmed the importance of adopting a cautious approach and retaining full flexibility to increase, pause or reverse the phase-out of the voluntary production adjustments”.
The potential measure could include “reversing the previously implemented voluntary adjustments announced in November 2023" to reflect the current market dynamics amid the supply and output constraints driven by the Iran war.
The members, who are set to meet again on July 5, raised output caps by almost 600,000 bpd between April and June. The increase for July is the latest tranche after the group began unwinding 1.65 million bpd of production cuts agreed in 2023.
The latest production increase is similar to what the Opec core group had agreed for June. That was adjusted down from 206,000 bpd in May to reflect the UAE’s exit from the cartel.
The online meeting was the second since the UAE formally left Opec on May 1, ending more than five decades of membership.
The UAE, the world's seventh-largest oil producer, left the group, citing a growing mismatch between its rising production capacity and the quotas it was permitted to pump under the Opec framework. The UAE had been producing close to 30 per cent below its capacity of 4.85 million bpd.
Despite the structural shock of the UAE's exit, the wider geopolitical challenges and an uncertain oil market outlook, Opec presented a united front on Thursday when Saudi Energy Minister Prince Abdulaziz bin Salman and other leading Opec officials congregated in Russia for the St Petersburg International Economic Forum.
“The situation we're going through now does make a point here, which is the world needs every molecule of energy, and every form of stabilisation to this energy, because without energy security, you will lose sustainability,” the Saudi minister said at the forum, Reuters reported.
“There are so many moving parts, there are so many unknowns, there are things that you think have become a reality, but then you wake up the next morning and the reality is no longer a reality.”
Historic supply shock
The higher July production targets follow a record supply shock to the global energy market. The Iran war wiped out 7.88 million bpd of Opec's production in March, creating a 27 per cent month-on-month decline to 20.79 million bpd.
Opec’s production averaged 33.19 million bpd in April versus 42.77 million bpd in February, according to its data.
Gulf oil producers have been forced to cut crude production due to the closure of the Strait of Hormuz, a vital waterway through which a fifth of global oil and gas supplies transited before the war broke out on February 28. Traffic through the chokepoint has all but halted.
US President Donald Trump on Thursday said that, in the worst-case scenario, the strait could remain closed until September. However, Mr Trump struck an optimistic tone in an interview with the New York Post, saying that negotiations with Iran to reopen the strait would conclude significantly before Labour Day, on September 7.
Even if Iran agrees to open the strait immediately, the supply shock will persist until the end of this year, oil industry experts told Opec in Vienna this week.
Consultants and analysts gathered at Opec headquarters for a technical meeting said it might take many months to return to prewar operations, according to a Bloomberg report, which cited two attendees of the private meeting.
