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

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Saudi Arabia, Russia and five other key members of OPEC+ agreed in an online meeting Sunday to boost oil production by 188,000 barrels a day from September, against a backdrop of disruption caused by the Mideast war.

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“The seven participating countries decided to implement a production adjustment of 188 thousand barrels per day,” they said in a joint statement.

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The increase, decided by the key countries in the enlarged Organisation of the Petroleum Exporting Countries, was widely expected by analysts.

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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,” said Jorge Leon, analyst at Rystad Energy.

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He warned, however, 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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The Gulf countries have struggled to increase exports due to the near-paralysis of the Strait of Hormuz orchestrated by Iran during the war in the Middle East — despite a brief upswing in shipping traffic after a US-Iran memorandum of understanding was signed in June.

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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, said Giovanni Staunovo, an analyst at UBS.

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The September increase, agreed by OPEC+ countries Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman, completes the unwinding of the second of the three production-cut packages introduced by the organisation.

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“Having completed the restoration campaign, OPEC+ has little incentive to rush into further supply changes. Our base case is a fourth-quarter pause while the group prepares for the 2027 quota negotiations,” said Rystad Energy’s Leon.

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“For now, geopolitics is masking the scale of the supply increase. That will become much clearer once export flows normalise,” he said.

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It remains unclear when the group will actually be able to increase its oil volumes. Some member countries, such as Iraq, have expressed a desire to significantly boost production.

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Russia, though, is confronted with repeated Ukrainian drone attacks on its oil infrastructure that have crimped production, currently hovering around nine million barrels per day — compared with a target of 9.8 million barrels per day.

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OPEC+ “faces potentially difficult talks over new production quotas” starting next year following the September increase, according to analysts at DNB Carnegie.

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Between late 2022 and 2023, OPEC+ became concerned that oil prices were falling, and agreed to cut oil production in three separate rounds, reducing total output by nearly six million barrels per day.

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But Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, Oman and the United Arab Emirates — before the latter’s exit from the group on May 1 — then changed their strategy by gradually upping production starting in 2025.

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“I don’t think cohesion is at risk at this very moment,” said Leon, warning, however, that the UAE’s withdrawal from the group in May has highlighted a weakness in this area.

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AFP

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