The Organization of the Petroleum Exporting Countries and its allies (OPEC+) has agreed to increase its crude output as the Middle East conflict continues to disrupt oil traffic passing through the Strait of Hormuz.
OPEC+ members met virtually on Sunday and afterwards announced plans to hike crude quotas by 206,000 barrels per day (bpd) in May as the Strait of Hormuz, which is the world's most important route for black gold, continues to face disruptions as a result of the US-Iran conflict.
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However, the modest rise agreed by the eight key producing countries — Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria and Oman — is not likely to bring down oil prices as it represents less than 2% of the supply disrupted by the Hormuz closure. Moreover, the increase is more symbolic than material as the oil can’t be exported until the Strait of Hormuz opens.
“In their collective commitment to support oil market stability, the eight participating countries decided to implement a production adjustment of 206 thousand barrels per day from the 1.65 million barrels per day additional voluntary adjustments announced in April 2023. This adjustment will be implemented in May 2026,” the group said in a statement.
The members' statement also noted that the 1.65 million barrels per day may be returned in part or in full subject to evolving market conditions and in a gradual manner.
"The countries will continue to closely monitor and assess market conditions, and in their continuous efforts to support market stability, they reaffirmed the importance of adopting a cautious approach and retaining full flexibility to increase, pause or reverse the phase out of the voluntary production adjustments, including reversing the previously implemented voluntary adjustments of the 2.2 million barrels per day announced in November 2023," the statement also said.
Offsetting market disruptions
Energy and markets analyst, Osama Rizvi, said to Euronews that OPEC's efforts, for now, will fall flat.
"OPEC’s March production fell by 7.3 million barrels per day. This suggests the group is already under significant pressure, as force majeures and more than 50 energy sites being disrupted have created structural supply issues. On the other hand, the planned increase of 206,000 barrels per day is modest and almost insignificant when compared with the loss of supply through the Strait of Hormuz, as well as production losses resulting from the conflict.
"What may help oil markets in the medium to long term is demand destruction, as US interest rates are expected to rise and the dollar strengthens. But for now, no additional supply — whether from a 400 million barrel release by the IEA or increased OPEC output — can offset what the world is losing via Hormuz," Rizvi said.
Efforts to stabilise soaring oil prices
Oil prices have surged since the Iran conflict began, with Brent and US crude nearing $120 a barrel, driving up fuel costs and putting pressure on consumers and businesses worldwide.
J.P. Morgan said in a note on Thursday that oil prices could go as high as $150 a barrel if supply flows remain disrupted until mid-May.
Meanwhile, US President Donald Trump has given Iran a deadline of Tuesday to open the Strait of Hormuz and has vowed to hit the country's power plants and bridges otherwise.
