OPEC+ to boost oil production as ceasefire in Iran remains elusive

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The cartel of influential oil-producing nations known as OPEC+ on June 7 agreed to increase production by 188,000 barrels a day in July as the US and Iran struggled to reach an agreement to end the war and fully reopen the Strait of Hormuz.

The move was the latest pledge in recent months by the group to step up output. In normal times, an increase by OPEC+ countries would help push prices lower. But the effective shutdown of the strait has stranded a vast portion of the world’s daily oil supply, making the increase largely symbolic.

“The countries will continue to closely monitor and assess market conditions”, the consortium of oil-producing nations said in a statement, and noted “the importance of adopting a cautious approach”. The decision followed a meeting, conducted remotely, of the OPEC+ countries, which include Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia and Saudi Arabia.

The war in the Middle East, which started with US-Israeli strikes on Iran on Feb 28, followed by Iran’s closure of the strait in retaliation, has sent oil and gas prices soaring, stoked worldwide fears of inflation and left countries scrambling for alternative energy supplies.

Ships transiting the strait, a narrow route to the Persian Gulf on Iran’s southern border, had ferried about one-fifth of the world’s energy supply before the war. In response to the waterway’s effective shutdown, Saudi Arabia, Iraq, the United Arab Emirates (UAE) and Kuwait have been forced to slash crude production.

In May, the UAE decided to leave OPEC, dealing a blow to the Saudi Arabia-led oil cartel.

That month, OPEC+ announced a modest 188,000 barrel a day increase; before that, the group had said it would raise oil production quotas by 206,000 barrels a day.

Jacques Rousseau, managing director for global oil and gas at ClearView Energy Partners, a Washington-based research firm, said that the new production boost means little.

“Everything is in a waiting game until the strait reopens,” Rousseau said. “These barrels, most of them aren’t even coming to the market because for Saudi Arabia, Kuwait and Iraq, and previously the UAE before they left, these barrels have nowhere to go.”

The longer the Strait of Hormuz remains closed, the longer it will take global inventories of oil to be replenished, potentially leading to continued higher prices, experts say. NYTIMES