OPEC+ on Sunday agreed to a fourth consecutive increase in oil production targets, even as the ongoing US-Iran conflict continues to restrict exports from several member countries and disrupt global energy supplies. Seven core members of OPEC+, which includes the Organization of the Petroleum Exporting Countries and allies such as Russia, decided to raise output targets by 188,000 barrels per day (bpd) from July, according to a statement issued after the meeting. The increase matches the June hike, which was revised lower from monthly increases of 206,000 bpd implemented in April and May following the United Arab Emirates' exit from OPEC+. The decision comes despite continuing disruptions to oil flows through the Strait of Hormuz, a key global energy transit route, with the conflict creating what has been described as the world's largest-ever oil supply crisis.
Oil prices were on track for weekly gains Friday as renewed geopolitical tensions in the Middle East, concerns over disruptions to crude flows through the Strait of Hormuz and tightening supply signals outweighed improving prospects for diplomacy between the US and Iran. Brent crude traded at $94.76 per barrel at 2.56 p.m. local time, up 2.9% from last Friday's close of $92.05, while US benchmark West Texas Intermediate (WTI) rose 6.3% on a weekly basis to $92.86 per barrel, compared with $87.36 a week earlier. Oil prices started the week on a strong footing after the US and Iran exchanged attacks over the weekend, raising concerns that tensions could spread across key oil-producing and shipping regions in the Middle East. However, oil prices fell to around $93 a barrel on Friday as traders grew more confident that the risk of a renewed escalation in the US-Iran conflict had eased, compared to prices near $72 a barrel before the conflict began.
OPEC crude output fell by 1.22 million barrels per day in May to 16.33 million barrels per day, marking its lowest level in at least 37 years, according to a Bloomberg survey released Friday. The decline was led by Iran, which accounted for more than half of the drop, with output falling by 710,000 barrels per day to a five-year low of 2.34 million barrels per day amid a US blockade of Iranian ports and disruption in the Persian Gulf. As reported by Bloomberg, war between a US-Israeli alliance and Iran has taken a heavy toll on oil supplies from the Middle East, largely shuttering the critical Strait of Hormuz waterway and forcing Saudi Arabia, Iraq, the UAE and Kuwait to slash crude production. In reality, the group's production has collapsed due to export cuts by Gulf members, averaging 33.19 million bpd in April versus 42.77 million bpd in February, according to OPEC figures. However, actual production remains well below target levels, with the group's production averaged 33.19 million bpd in April, down sharply from 42.77 million bpd in February.
The seven countries are increasing production under a plan to gradually reverse the 1.65 million bpd voluntary production cut agreed in 2023. According to Reuters calculations, after the July increase, around 567,000 bpd of the original cut remains to be restored to the market, taking into account the UAE's exit from the group. If OPEC+ continues with monthly increases of roughly 188,000 bpd in August and September, the remaining cuts could be fully unwound by the end of September. The countries participating in Sunday's meeting were Saudi Arabia, Iraq, Kuwait, Algeria, Kazakhstan, Russia and Oman, while three additional OPEC and OPEC+ meetings, including a gathering of all OPEC+ ministers, were also scheduled for Sunday. Sources had indicated earlier that no changes were expected to the broader group-wide production policy.
US crude oil inventories have plummeted to 43.4 million barrels after six consecutive weeks of drawdowns, falling by 63.9 million barrels or 7.5% since the start of the war. Cushing, Oklahoma's storage capacity has dropped to 22.4 million barrels as of May 29, representing a 4 million barrel decline from February 27, just before the US and Israel war against Iran began. According to Energy Aspects' Jeremy Irwin, if Cushing's oil levels drop below 20 million barrels, there could be operational issues, as this level hasn't been reached since the US lifted oil export controls in 2015. Phillips 66 Refiner believes Cushing's oil storage could reach its operational minimum, with sources indicating this could cause delays or cut off oil flow from the hub.
Market sentiment was weighed down by hopes that Israel and Lebanon could move toward implementing a ceasefire, reducing concerns over broader regional instability and potential supply disruptions. However, gains were limited as diplomatic signals from Washington and Tehran improved throughout the week. US President Donald Trump repeatedly said negotiations with Iran were continuing and suggested an agreement could be reached within days, while Iranian officials indicated communication channels remained open despite limited progress in talks. The renewed ceasefire agreement between Lebanon and Iran faced challenges as Hezbollah rejected the proposal supported by the United States and the Lebanese government, with Lebanese President Joseph Aoun publicly accusing Iran of using Lebanon as leverage in its negotiations with the US. Reports that the US House of Representatives approved a war powers resolution aimed at limiting military operations against Iran further reinforced expectations that both sides remain committed to diplomacy rather than escalation. However, analysts remain cautious, with Jorge Leon, an analyst at Rystad and a former OPEC official, noting that "An OPEC+ production increase means very little while the Strait of Hormuz remains closed." He added that "When the Strait of Hormuz reopens, the market could move very quickly from fear of shortage to fear of surplus."
