OPEC+ Approves Fourth Oil Output Quota Hike Since Hormuz Closure

OPEC+ has approved a fourth increase in its oil output targets in as many months, agreeing to raise targets by 188,000 barrels per day starting in July. This decision comes despite ongoing disruptions caused by the war involving Iran, which continues to prevent several member nations from reaching their full production capacity.

The conflict has severely impacted oil flows through the Strait of Hormuz, creating a significant supply crisis. Key OPEC+ members, including Saudi Arabia, have been unable to fully supply their customers since late February. The situation was further complicated by the United Arab Emirates' departure from the Organization of the Petroleum Exporting Countries after nearly 60 years.

In reality, the group's overall production has seen a substantial decline. According to OPEC figures, production averaged 33.19 million barrels per day in April, a sharp drop from 42.77 million barrels per day in February. The recent increases in output quotas have been adjusted to account for the UAE's exit, with the June hike being lower than those in May and April.

Analysts express skepticism about the impact of these production increases. Jorge Leon, an analyst at Rystad and a former OPEC official, stated, "An OPEC+ production increase means very little while the Strait of Hormuz remains closed." He cautioned that once the strait reopens, the market could rapidly transition from fearing a shortage to fearing a surplus.

Meanwhile, oil prices have shown volatility, falling to around $93 a barrel on Friday as the likelihood of renewed conflict between the U.S. and Iran appeared to diminish. Prices had been close to $72 before the war began. The seven core members of OPEC+ involved in the output policy decisions are Saudi Arabia, Iraq, Kuwait, Algeria, Kazakhstan, Russia, and Oman.

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An OPEC+ production increase means very little while the Strait of Hormuz remains closed. When the Strait of Hormuz reopens, the market could move very quickly from fear of shortage to fear of surplus.