OPEC+ to Increase Oil Output by 188,000 BPD in August as Production Cuts Unwind

OPEC+ members agreed to increase oil production targets by 188,000 barrels per day (bpd) starting in August. This decision continues a phased rollback of production cuts by the group’s seven core members, aiming to return supply to the global market as geopolitical tensions and shifting demand in China influence oil prices.

What is the new OPEC+ production schedule?

During a recent online meeting, the seven core members of OPEC+ agreed to raise their monthly quotas by 188,000 bpd beginning in August. This follows similar incremental increases implemented in June and July. According to recent data, these seven producers—Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan, and Oman—have already increased their combined output by almost 800,000 bpd since April.

The group is currently in the process of unwinding a 1.65 million bpd supply cut agreed upon in 2023. If the core members implement a similar increase in September, they will have fully unwound the 2023 cut. Reuters calculations suggest that after the August increase, the core group will still have approximately 379,000 bpd of the original cut remaining to return to the market.

How did the UAE’s departure change the group’s dynamics?

The composition of the alliance’s decision-making core changed when the United Arab Emirates (UAE) left the group. The UAE’s exit in late April stemmed from a desire to align its capacity more closely with its production, free of production restraints imposed by the group.

The departure of the UAE has shifted the burden of production management. While OPEC+ includes 21 members, including Iran, in recent years only the seven nations and the UAE until its departure have been involved in monthly production management. With the UAE no longer part of this management structure, the remaining members must balance their quotas against increasing pressure from other members, such as Iraq, which has signaled a desire for higher quotas.

Why are Brent crude prices fluctuating?

Brent crude prices recently traded near $72 per barrel, a drop from recent peaks of more than $120 per barrel. Several market factors are driving this downward pressure:

• Reduced Chinese Demand: Lower crude imports from China have dampened global price sentiment.
• Non-Middle East Supply: Increased exports from producers outside the Middle East are adding to global supply.
• Strategic Stock Releases: A record global strategic stock release, coordinated by the International Energy Agency (IEA), has helped stabilize or lower prices.
• Geopolitical Risk Shifts: While tensions in the Middle East historically drive price spikes, a memorandum of understanding (MoU) between Washington and Tehran to end the war has also helped convince traders that supply will ultimately return to normal levels.

What are the primary risks to oil supply stability?

Analysts are closely monitoring two main variables that could disrupt the current market trajectory. Giovanni Staunovo, an analyst at UBS, noted that the group of seven kept unwinding their production cuts as widely expected, but the focus now shifts to logistics and demand recovery.

The first risk involves the Strait of Hormuz, which has been impacted by the US-Israeli war on Iran, closing the strait to tanker traffic for some of the most important OPEC+ members, including Saudi Arabia, Kuwait, and Iraq. Any disruption to tanker traffic in this region could tighten global supplies. The second risk is the speed of demand recovery, specifically regarding Chinese crude imports. If demand does not catch up to the increasing supply from OPEC+, the market may face continued downward price pressure.

Comparison of OPEC+ Production Trends

Key Takeaways

• August Increase: OPEC+ core members will add 188,000 bpd to global supply.
• UAE Exit: The UAE’s departure in late April has altered the group’s production management structure.
• Price Context: Brent crude has retreated to roughly $72 per barrel due to high non-Middle East supply and low Chinese demand.
• Market Focus: Future volatility will depend on Strait of Hormuz shipping stability and Chinese import volumes.