• OPEC+ raised August output targets by 188,000 bpd, extending the gradual unwind of 2023 cuts as the group looks to restore supply without losing grip on the market.
  • Oil stays under pressure as the Hormuz reopening cuts the war-risk premium, while soft Chinese demand, rising non-OPEC exports, and reserve releases point to a looser supply-demand balance.
  • Actual OPEC+ supply is still recovering, with output below official targets as producers work to bring disrupted exports and wells back online.

OPEC+ will raise its oil output target once again in August, pressing ahead with plans to restore supply after months of disruption in the Middle East.

The decision came from an online meeting on Sunday between the group’s core members, led by Saudi Arabia and Russia.

The latest increase will add 188,000 barrels per day to the group’s August output target. This marks the latest in a series of monthly increases that began in April, as OPEC+ gradually rolls back the production cuts it first introduced in 2023. ⁽¹⁾

Why Prices Are Falling

Oil prices have seen a sharp drop in recent weeks. Brent crude is down 43% from its peak of $120 per barrel. The main reason being the signed memorandum deal to end the conflict between the US and Iran, which led to reopening the Strait of Hormuz.

Other factors are also weighing on prices. Chinese oil imports have slowed, other non-Middle East producers have increased exports, and there’s been a large release of strategic oil reserves led by the International Energy Agency. ⁽²⁾

The Brent price curve also moved into contango this week, meaning supply for immediate delivery is now stronger than demand.

Production Still Recovering

Even though OPEC+ started to raise its targets since April, actual output has lagged behind. That’s because the Middle East conflict halted tanker traffic through the Strait of Hormuz for three months, which damaged production in Saudi Arabia, Kuwait, and Iraq.

OPEC+ output fell from 42.77 million barrels per day in February to just 33.13 million in May. ⁽³⁾

Recovery began in June, helped partly by US efforts to support increased exports from the UAE and other producers. Analysts say actual production is still below official targets, and getting shut-in oil wells back online takes time. ⁽⁴⁾

Beyond OPEC: How the UAE and Russia Hit Record Exports

Two countries outside the official OPEC+ quota system are also shaking things up. The UAE, who left OPEC+ in May after growing frustrated with output limits, pumped a record 3.7 million barrels per day in June. ⁽⁵⁾

Russia also hit a record for exports from its western ports, close to 3 million barrels per day, partly because Ukrainian drone strikes on its refineries forced it to sell more crude abroad instead of processing it at home. ⁽⁶⁾

What Comes Next?

A few key dates will shape how the story develops. The US releases its weekly oil inventory report on Wednesday, followed by inflation data on July 14.

Then on August 2, OPEC+ ministers will meet again to set quotas for September, and possibly decide whether to fast-track the last portion of the 2023 production cuts.

Sources: ⁽¹⁾ ⁽²⁾ ⁽³⁾ ⁽⁴⁾ Reuters, ⁽⁵⁾ ⁽⁶⁾ Investing.com