OPEC+ Raises Oil Production Quotas Amid Strait of Hormuz Closure

Production Increase Announced

OPEC+ has announced that seven major oil producers will increase their total production quota by 188,000 barrels per day for the month of June. According to sources, this marks the third consecutive monthly increase in output targets.

Despite the increase in quotas, the actual impact on global supply is expected to be limited. Sources indicate that the increase will remain "largely on paper" as long as the ongoing war between the U.S. and Iran continues to disrupt oil supplies from the Gulf.

Impact of Strait of Hormuz Closure

The decision comes as the Strait of Hormuz remains effectively closed due to the conflict. Iranian officials have warned that the waterway will "under no circumstances" return to its previous state.

This closure has forced exporters around the Persian Gulf to shut down significant portions of their output. According to a report from OPEC, crude oil output from all members averaged 35.06 million barrels per day (bpd) in March, a decline of 7.70 million bpd from February. The report noted that Saudi Arabia and Iraq experienced the largest cuts due to constrained exports. Outside of the Gulf region, Russia has also reduced output following Ukrainian drone attacks on its infrastructure.

UAE Exit and Group Dynamics

The production adjustment follows the surprise departure of the United Arab Emirates from OPEC on Tuesday. The UAE's exit was attributed to years of frustration regarding constraints placed on its oil output.

Analysts from ING noted that any increase in UAE output cannot be realized until a resolution in the Persian Gulf allows for uninhibited energy flows through the Strait of Hormuz. In the medium to long term, however, the UAE's decision to leave the organization is expected to result in more supply for the market.

Market Reactions and Outlook

Market sources suggest that the decision to raise quotas signals a "business-as-usual" approach from OPEC+, indicating a willingness to increase supply once the war concludes. Some observers note that raising quotas now may be useful for countries to revive production more quickly after the conflict ends.

Oil prices have shown volatility in response to geopolitical developments. Prices fell on Friday after Iran sent an updated peace proposal to mediators in Pakistan. Conversely, prices rose on Sunday following warnings from Iranian officials regarding the permanent status of the Strait of Hormuz. At that time, Brent crude rose approximately 2.14% to $107.58, while U.S. crude increased 2.08% to $96.36.