OPEC+ has agreed in principle to raise oil output targets in June, two sources familiar with the group’s thinking said on Saturday, but the increase will remain largely on paper as long as the U.S.-Iran war continues to disrupt Gulf oil supplies.
Seven OPEC+ countries have an agreement in principle to raise oil output targets by about 188,000 barrels per day in June, the third consecutive monthly increase, pressing on with plans despite the war and the departure of the United Arab Emirates from the group this week, the sources said ahead of a policy meeting on Sunday.
The seven members meeting on Sunday are Saudi Arabia, Iraq, Kuwait, Algeria, Kazakhstan, Russia, and Oman. With the UAE leaving, OPEC+ includes 21 members, including Iran, but in recent years, only the seven nations plus the UAE have been involved in monthly production decisions.
The Iran war, which began on Feb. 28, and the resulting closure of Hormuz have throttled exports from OPEC+ members Saudi Arabia, Iraq, and Kuwait, as well as the UAE. Before the conflict, these producers were the only countries in the group that could increase production.
Iran, also an OPEC+ member though not among the seven meeting on Sunday, has seen its own exports cut by a U.S. blockade imposed in April.
Time needed for oil flows to normalize
The output hike will remain largely symbolic until shipping through the Strait of Hormuz reopens, and even then, it will take several weeks, if not months, for flows to normalize, oil executives from the Gulf and global oil traders have said.
The disruption propelled oil prices to a four-year high this week, above $125 per barrel, as analysts begin to predict widespread jet fuel shortages in one to two months and a spike in global inflation.
The increase on Sunday will be similar to last month’s hike of 206,000 bpd, minus the UAE’s share, which left the group on May 1, the sources said. They spoke on condition of anonymity as they are not allowed to speak to the media.
The decision signals that OPEC+ is taking a business-as-usual approach and is willing to raise supply once the war is over, sources said earlier.
Crude oil output from all OPEC+ members averaged 35.06 million bpd in March, down 7.70 million bpd from February, OPEC said in a report last month, with Iraq and Saudi Arabia making the biggest cuts due to constrained exports. Outside the Gulf, Russia has also cut output after Ukrainian drone attacks damaged its infrastructure.
Oil prices fell on Friday after Iran sent an updated peace proposal to mediators in Pakistan, raising hopes again that a settlement with the U.S. is still possible.
U.S. crude oil futures fell 3% to close at $101.94 per barrel. The international benchmark Brent crude lost nearly 2% to settle at $108.17.
