Key facts
- Seven OPEC+ members, including Saudi Arabia and Russia, are likely to raise oil production quotas for August.
- Analysts predict a production increase of 188,000 barrels per day.
- Disruptions in the Strait of Hormuz had previously led to output cuts by Gulf countries.
- Shipping in the region has recovered following an MoU between Iran and the US on June 17.
- Oil prices have fallen sharply as a result of the improving shipping situation.
- Restarting shut-in production will take time, with August expected to see accelerated recovery.
Seven OPEC+ members, including Saudi Arabia and Russia, are expected to approve an increase in oil production quotas for August. Analysts predict this move as Gulf producers gradually restore output following disruptions caused by the Middle East war and the near-paralysis of the Strait of Hormuz. Giovanni Staunovo, a commodity analyst at UBS, anticipates a continued unwinding of production cuts at the same pace as previous months, predicting an increase of 188,000 barrels per day. However, he noted that current production is likely still below the group's targets.
Gulf countries had previously been forced to cut output due to blockades in the Strait of Hormuz orchestrated by Iran during the Middle East conflict, which hampered their oil exports for several months. Since a memorandum of understanding was signed between Iran and the US on June 17, ship transport in the region has shown signs of recovery, leading to a sharp drop in oil prices. Analysts suggest that while shipping is normalizing, restarting shut-in production will take time, with August expected to show an acceleration in output.
Looking ahead, analysts foresee a potential surplus in oil supply next year, which could put downward pressure on prices. Producers may need to manage sliding prices as members push for increased production. Iraq, in particular, has requested the cartel to raise its production quotas to compensate for shortfalls incurred during the war. However, some analysts believe the need for higher quotas is not immediate, as production volumes are still far from pre-conflict levels.