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OPEC+ will raise July oil quotas by 188,000 barrels per day, but analysts say Middle East tensions and Strait of Hormuz disruptions limit price impact and risk future oversupply.
OPEC+ will raise July oil quotas by 188,000 barrels per day, but analysts say Middle East tensions and Strait of Hormuz disruptions limit price impact and risk future oversupply. (IMAGE: REUTERS)
The OPEC+ alliance has agreed to raise oil production quotas by a combined 188,000 barrels per day in July, continuing its gradual rollback of voluntary supply cuts amid elevated global oil prices and ongoing geopolitical tensions in the Middle East.
The decision was taken during a virtual meeting of oil ministers from key OPEC+ members, including Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria and Oman.
According to a statement issued after the meeting, the production increase is intended to support stability in the global oil market while also allowing participating countries to accelerate compensation measures linked to previous output adjustments.
The latest increase is in line with production hikes approved by the group in recent months.
Mideast Conflict Overshadows Supply Increase
Despite the decision, analysts believe the additional oil is unlikely to significantly influence global prices while tensions remain high in the Middle East and shipping through the Strait of Hormuz remains disrupted.
Jorge Leon, an analyst at Rystad Energy, said the production boost would have little immediate effect on market fundamentals.
“The market is not short of quota announcements; it is short of physical barrels that can actually move,” Leon said, arguing that the increase represents more of a policy signal than a substantial boost to supply.
The Strait of Hormuz, a critical maritime route for global oil exports, has become a focal point of concern following the ongoing regional conflict. Any disruption to traffic through the narrow waterway can significantly impact global energy markets.
OPEC+ Signals Flexibility
In its statement, OPEC+ stressed that member countries remain committed to a cautious approach and retain the flexibility to adjust production levels depending on market conditions.
The alliance said it could increase, pause or even reverse planned output changes if necessary, including revisiting voluntary production cuts first announced in November 2023.
The group’s emphasis on flexibility reflects uncertainty surrounding the evolving geopolitical situation and future oil demand.
Risk of Oversupply Looms
Analysts also warned that the market could face a very different challenge if tensions in the Gulf ease and oil flows normalise.
According to Leon, the reopening of the Strait of Hormuz could quickly shift market sentiment from fears of supply shortages to concerns about oversupply.
He noted that a combination of returning OPEC+ barrels, increased US shale production and weaker demand following a period of elevated prices could leave the market facing a significant surplus.
For now, however, traders remain focused on geopolitical risks and the availability of physical oil supplies rather than production quota announcements, keeping energy markets on edge despite OPEC+’s latest move.
Vienna, Austria
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