The OPEC+ alliance announced on Sunday a new increase in oil production quotas for July, one that may have little impact if the war in the Middle East continues.
In a statement issued following an online meeting of its member states, the alliance said: "As part of their collective commitment to oil market stability, seven of the 21 member countries have decided to implement a production adjustment of 188,000 barrels per day in July" — the fourth such increase since the closure of the Strait of Hormuz. Jorge León, an analyst at Rystad Energy, said the expected increase "doesn't mean much as long as the Strait of Hormuz remains closed."
He added: "Markets are not suffering from a shortage of quota announcements, but from a shortage of actual tradeable barrels. In that sense, the 188,000 barrels-per-day increase will be more of a political signal than a real supply increase." The production increase was agreed upon at an online meeting of oil ministers from the alliance's key member states, namely:
Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and the Sultanate of Oman, according to the statement. The increase mirrors those seen in previous months, and the seven countries also view it as an opportunity to boost revenues at a time when oil prices are recording historic highs. The statement added that the ministers "reaffirmed the importance of adopting a cautious approach and retaining full flexibility to increase, pause, or cancel voluntary production adjustments."
León of Rystad Energy said the OPEC+ alliance had been cautious in anticipation of a possible shift in the course of the war in the Middle East and an easing of the Strait of Hormuz closure. He added that when the strait is reopened, the market could move very quickly from fear of shortage to fear of surplus, noting that the return of OPEC+ supplies, a robust US shale oil response, and weakened demand following a period of significantly elevated prices could create a major oversupply problem in the market.