OPEC+ Raises Production Quotas

The OPEC+ alliance has decided to raise oil production quotas by 188,000 barrels per day, effective August 2026. This move by seven key member nations, Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman, signals a shift as the group adjusts to the aftermath of the Middle East war.

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Production still, for now, is likely below the targets set by the OPEC+ alliance.

Gulf states, including Saudi Arabia, Iraq, and Kuwait, were compelled to significantly reduce their output, by approximately six million barrels daily between the first quarter of 2026 and May, following Iran's closure of the Strait of Hormuz during the conflict. However, recent developments, including a memorandum of understanding between Tehran and Washington on June 17 to facilitate navigation, have paved the way for recovery.

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Restarting halted production takes time.

Despite the increase in quotas, analysts suggest that overall production may still lag behind OPEC+'s targets. Giovanni Staunovo, an analyst at UBS, noted that restarting halted production takes time. While maritime traffic through the Strait of Hormuz shows signs of recovery, with prices returning to pre-war levels, the full resumption of output is expected to be gradual. July is anticipated to see improvements, with August potentially accelerating this recovery.

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Everyone expects a surplus next year.

Looking ahead, Jorge Leon of Rystad Energy predicts a potential oil surplus next year. While rebuilding inventories drawn down during the war could absorb initial extra supplies, producers might face significant downward price pressure later. The alliance, weakened by the UAE's withdrawal in May, faces the challenge of managing declining prices while striving to increase production. Iraq's request for a higher quota to compensate for wartime production losses is noted, though analysts suggest it may be addressed in future production capacity reviews.

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The Iraqi demand is likely to be considered during the review of production capacities for 2027, when the base production levels for member states will be discussed.