OPEC+ boosts oil output as markets fret over surplus

The oil alliance OPEC+ has agreed to boost its production by 188,000 barrels per day starting August 1. This marks the fifth consecutive increase this year as the group gradually reverses voluntary production cuts implemented in 2023 to support international crude prices.

This decision was made by key oil-exporting nations including Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman during a virtual meeting. The increase is consistent with previous months and reflects the group's commitment to returning some withdrawn oil to the market, with the stated goal of maintaining energy market stability.

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The alliance OPEP+, integrated by the main oil exporting countries and their partners, agreed to increase its production by 188 thousand barrels per day starting August 1.

Recent geopolitical events and shipping disruptions in the Strait of Hormuz had previously limited the impact of these increases, as some producers involuntarily reduced their output. However, with a partial recovery in maritime transit, the agreed-upon increases are expected to be fully reflected in global supply.

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The market fears excess supply after the increase in OPEC+ production.

This prospect has raised concerns among oil market investors and traders. The International Energy Agency forecasts that global supply could outstrip demand by approximately 3.8 million barrels per day this year. This raises the risk of an oversupply, which would put further downward pressure on international crude prices. Indeed, prices have already shown this trend, with Brent crude closing the week at $72.12, significantly down from its recent peak of $126 during the Middle East conflict. The OPEC reference crude has also fallen from $146.05 to $69.33.

Iraq, the second-largest OPEC producer, is seeking to expand its production, having formally requested an increase in its output quota. If approved, this would add even more crude to the international market. Additionally, the United Arab Emirates plans to produce at its maximum capacity after leaving OPEC, a move that could further increase supply and reinforce downward pressure on oil prices. The seven participating countries will continue to monitor market conditions and will reconvene virtually in August.

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The International Energy Agency projects that global supply could exceed demand by about 3.8 million barrels per day during this year.