OPEC+ has decided to increase oil production quotas by 188,000 barrels per day for August, continuing a trend of modest increases seen in June and July. This decision reflects a strategy to gradually restore supply to the global market as geopolitical disruptions, particularly concerning the Strait of Hormuz, ease. The total increase since the war began amounts to 940,000 barrels a day, or nearly 1% of global demand, from the seven core members including Saudi Arabia and Russia.
The recovery in export flows through the Strait of Hormuz, a crucial waterway for about a fifth of the world's oil and gas, has been a key factor in stabilizing global oil markets. While the increase had largely been theoretical due to the US-Israeli war on Iran disrupting tanker traffic, an interim peace pact between Tehran and Washington, signed on June 17, and a US sanctions waiver allowing Iran to sell oil in US dollars, have significantly reduced geopolitical risk.
Oil prices have responded to these developments, with Brent crude trading near $72 per barrel on Friday, down from peaks of over $120 per barrel during the conflict. This brings prices back to levels seen before the US and Israel attacked Iran on February 28. Nagham Hassan, a market analyst at eToro, noted that markets have priced out the risk of prolonged disruption in the Strait of Hormuz, despite some lingering tanker backlogs and shipping delays.
Despite the output increases, OPEC+ output in May had fallen to 33.13 million barrels per day from 42.77 million barrels per day in February, before starting to recover in June. With the August increase, the seven core members, after accounting for the UAE's exit, will still have about 379,000 barrels per day of their original cut to return to the market. Should they implement another similar hike for September, they would have fully unwound the 2023 cut. The UAE exited OPEC+ in late April, citing a desire to align its capacity more closely with its production, free of group-imposed restraints.
Other factors contributing to the return of oil prices to pre-war levels include lower Chinese imports, higher exports from non-Middle East producers, and a record global strategic stock release coordinated by the International Energy Agency. Saudi Arabia will increase output by 62,000 barrels per day, bringing its required production to 10.4 million barrels per day, while Russia will also add 62,000 barrels per day to reach 9.88 million barrels per day. Iraq will add 26,000 barrels per day, and Kuwait will increase production by 16,000 barrels per day. Amid these developments, OPEC has also lowered its oil demand outlook for 2026 for the second consecutive time.
