OPEC+ increases production quotas for July

OPEC+ ministers have decided to increase oil production quotas by a combined 188,000 barrels per day for July, a move analysts suggest will have minimal impact on global prices already influenced by the Mideast conflict.

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The market is not short of quota announcements; it is short of physical barrels that can actually move. In that sense, the 188,000 barrels per day increase would be more of a policy signal than a real supply boost.

Analysts like Jorge Leon from Rystad Energy noted that the increase "means very little while the Strait of Hormuz remains closed." He explained that the market's primary concern is a shortage of physically available barrels, not quota announcements. Therefore, the 188,000 barrels per day hike is seen more as a policy signal than a substantial supply boost.

The decision was made during a video meeting of oil ministers from key OPEC+ nations, including Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman. The organization stated the hike aims to "support oil market stability." Additionally, the seven countries see this as an opportunity to "accelerate their compensation" amid historically high oil prices.

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When the Strait of Hormuz reopens, the market could move very quickly from fear of shortage to fear of surplus.

OPEC+ remains cautious about potential shifts in the Mideast war and the implications for the Strait of Hormuz. Leon warned that if the Strait reopens, the market could rapidly shift from fearing a shortage to fearing a surplus. Factors such as returning OPEC+ supply, a stronger US shale response, and potentially weaker demand could lead to a significant oversupply problem.

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Returning OPEC+ supply, a stronger US shale response and weaker demand after a period of very high prices could leave the market with a very large oversupply problem.