OPEC+ boosts September production by 188,000 barrels per day

Seven key members of OPEC+, including Saudi Arabia and Russia, have agreed to boost oil production by 188,000 barrels per day from September. This decision, reached during an online meeting on Sunday, marks the completion of the second of three production-cut packages introduced by the organization.

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The seven participating countries decided to implement a production adjustment of 188 thousand barrels per day.

Analysts widely expected the increase, which aims to unwind voluntary cuts. However, the near-term market impact is considered uncertain. Jorge Leon, an analyst at Rystad Energy, noted that "today’s decision changes little in the near term because (the Strait of) Hormuz remains constrained. The real market impact will come when normal export flows resume."

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OPEC+ has finished unwinding its voluntary cuts. The next challenge is managing the surplus that could emerge as export flows normalise.

Several factors complicate the outlook for increased exports. Geopolitical tensions, particularly concerning the Strait of Hormuz, have previously led to disruptions. While shipping traffic saw a brief upswing after a US-Iran memorandum of understanding in June, the situation remains fluid. Furthermore, some OPEC+ members face challenges in meeting their official production targets due to declining production capacity, making target increases less meaningful.

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Today’s decision changes little in the near term because (the Strait of) Hormuz remains constrained. The real market impact will come when normal export flows resume.

Russia, for instance, has experienced reduced production due to Ukrainian drone attacks on its oil infrastructure, with output hovering around nine million barrels per day against a target of 9.8 million. The group faces potentially difficult negotiations over new production quotas starting next year, following this September increase. Analysts anticipate a pause in further supply changes in the fourth quarter as the group prepares for these upcoming quota discussions.

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Many OPEC+ members cannot produce as much oil as their official targets allow due to a “decline in production capacity”, so increasing targets has become less meaningful.