Key Takeaways:
OPEC+ approved a 188,000 barrel-per-day production increase for August, the group said Sunday, accelerating the unwinding of supply cuts just as the Strait of Hormuz shipping corridor shows signs of recovery — sending Brent crude below $72 a barrel for the first time since before the U.S.-Israeli attack on Iran.
"The group of seven kept unwinding their production cuts as widely expected," said Giovanni Staunovo, an analyst at UBS. "The near-term focus will remain on how many tankers will manage to cross the Strait of Hormuz and how quickly demand and Chinese crude imports recover."
Brent crude traded at $71.80 a barrel in early Asian hours Monday, while West Texas Intermediate fell to around $68. The declines erase all gains since Feb. 28, when the U.S. and Israel launched strikes on Iran that closed the Strait of Hormuz to tanker traffic from some of OPEC's largest producers. Brent averaged above $120 in the weeks after the attack before sliding 30 percent in the second quarter alone.
The seven core members — Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria and Oman — have now raised quotas by almost 800,000 bpd since April as part of a phased rollback of the 1.65 million bpd supply cut agreed in 2023. Yet much of that increase remained theoretical because the conflict prevented tankers from loading crude at key Persian Gulf terminals. OPEC+ output fell to 33.13 million bpd in May from 42.77 million bpd in February, according to OPEC data, before beginning to recover in June as the U.S. helped the UAE and other nations resume exports.
The supply recovery is now visible in physical markets. The benchmark Brent and Dubai crude spreads have flipped to contango, where near-term contracts trade below later-dated ones — a bearish structure indicating that barrels are arriving faster than buyers can absorb them. Many spot cargoes are also trading below their official selling prices, according to traders.
The return of supply comes as demand faces headwinds. Chinese crude imports have slowed, non-Middle East producers have boosted exports, and the International Energy Agency coordinated a record release of strategic stockpiles that helped cap prices even during the worst of the disruption. A temporary peace memorandum between Washington and Tehran, signed in June, has further convinced traders that supply will normalize.
The group's internal dynamics are shifting. The United Arab Emirates left OPEC+ in late April to escape production restraints and align output with its growing capacity, removing about 3 million bpd of notional quota from the alliance's calculations. Iraq has signaled it wants a higher baseline for itself. From August, the seven remaining members have about 379,000 bpd of the original cut left to unwind, according to Reuters calculations. If they continue at the same pace, the 2023 cut will be fully restored by the end of September.
Citigroup has warned that Brent could fall to $60 a barrel by year-end as supply growth outpaces demand. The group's next meeting is scheduled for Aug. 2, when members will decide on September quotas and review compensation plans for countries that overproduced since January 2024.
This article is for informational purposes only and does not constitute investment advice.
