OPEC+ is set to increase oil output quotas by 188,000 barrels per day (bpd) starting in August, according to sources familiar with the group's discussions. This decision is expected to be formalized during their upcoming meeting. Two additional sources corroborate that this specific volume increase is the most anticipated outcome.
This anticipated quota hike comes as the Middle East region calms, with ship transport in the Strait of Hormuz showing signs of recovery. Oil prices have dropped sharply to levels comparable to those seen before the war, anticipating a gradual return to normal. Analysts like Giovanni Staunovo of UBS predict that OPEC+ will continue to unwind production cuts at the same pace as in previous months, forecasting the 188,000 bpd increase. However, current production is still likely below the group's targets.
Seven OPEC+ members, including Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan, and Oman, are expected to raise their August quotas. Combined production from Saudi Arabia, Iraq, and Kuwait had fallen by approximately 6 million bpd during the Middle East conflict, largely due to the near-paralysis of the Strait of Hormuz. A recent memorandum of understanding between Tehran and Washington to remove obstacles to maritime traffic in the Strait of Hormuz has accelerated the recovery of regional oil flows. In June, OPEC's crude oil production surged by 2.34 million bpd to 18.75 million bpd as Persian Gulf members restored exports.
Despite the sharp rebound in June, production remains considerably below pre-war levels. When adjusted for the United Arab Emirates' exit from OPEC in May, the group's output was still 7.3 million bpd, or 28%, below February levels. Iraq has expressed a desire for higher production quotas to compensate for wartime shortfalls, although analysts like Ole Hansen believe the need for an immediate increase may not be pressing as current production volumes are still far from pre-conflict levels.
Looking ahead, analysts like Jorge Leon of Rystad Energy anticipate a surplus next year. While rebuilding national inventories may initially absorb the increased flows, producers could face strong downward pressure on prices later on. This situation will challenge OPEC+, which is already navigating falling prices and internal pressures for production increases from members, especially following the UAE's departure.
