Key Takeaways:
OPEC+ is set to approve a fifth consecutive monthly output increase of 188,000 barrels per day starting in August, adding to global supply as the gradual reopening of the Strait of Hormuz pushes crude prices back toward pre-conflict levels.
"The market is normalizing faster than expected, and we are adjusting supply accordingly," a delegate from one of the seven participating nations said ahead of Sunday's teleconference. Ministers from Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria and Oman — seven of the 21 members in the alliance — will vote on the increase.
The group resumed monthly production increases in April after a three-month pause, though the agreed additions have been largely nullified by involuntary output losses from several members. Cumulative production losses reached close to 10 million bpd in April, according to OPEC estimates, driven by conflict-related disruptions in Iraq, Iran, Saudi Arabia and Kuwait, plus reduced Russian extraction from Ukrainian attacks on its energy infrastructure.
The output decision comes as crude prices have retreated to levels last seen before the US and Israeli military campaign against Iran began in late February. A memorandum of understanding between Washington and Tehran extended a ceasefire and opened the door for negotiations on a comprehensive agreement, allowing tanker traffic through the Strait of Hormuz to resume after a four-month effective closure. About a fifth of the world's oil and liquefied natural gas supplies transited the chokepoint before the conflict.
Hormuz Reopening Remains Fraught
Despite the interim peace deal signed last month, at least eight ships attempting to leave the Persian Gulf along the Omani coast turned back between Friday and Saturday, signaling that the waterway's full reopening remains complex. Iran's ambassador to Beijing, Abdolreza Rahmani Fazli, said Saturday that the strait is now a matter of "national security" and that Tehran will impose service fees on transiting vessels in coordination with Oman.
"We will definitely have special considerations for China, because China is a friendly country," Fazli said at the World Peace Forum in Beijing, without specifying what those concessions would entail. China buys almost all of Iran's oil exports and has called for unhindered shipping through the strait.
The US and Gulf Arab states insist Iran and Oman cannot impose charges on the waterway, while some European nations have accepted the principle of transit fees, pressing Iranian and Omani officials not to discriminate based on nationality. Fazli said enforcement "will not go against the international laws of the sea" and that fees would cover safe passage guarantees and environmental remediation costs.
Supply Glut Risks Build
The combination of OPEC+'s steady output restoration and the resumption of Iranian exports through Hormuz could add more than 1 million bpd to global markets by the fourth quarter, based on pre-conflict production levels. The last time OPEC+ faced a similar supply overhang — during the 2020 price war between Saudi Arabia and Russia — Brent crude collapsed to below $20 a barrel before the alliance agreed to record cuts of 9.7 million bpd.
WTI crude traded near $72 a barrel Friday, down from a war-time peak above $96 in March, as traders priced in the dual supply boost. The next OPEC+ meeting is scheduled for September, when the group will assess whether market conditions can absorb further increases.
This article is for informational purposes only and does not constitute investment advice.
