The "Seven" of OPEC+, including Russia, has increased the production ceiling for oil in July by 188,000 barrels per day, maintaining the same level as the previous month. Due to the blockade of the Strait of Hormuz, oil production in the Persian Gulf countries is limited. However, the increase in quotas is expected to allow for greater supply in the future without causing market shocks, experts say.
Countries in OPEC+, including Russia, have raised the permitted level of oil production in July by 188,000 barrels per day (b/d), according to an alliance statement. Similar increases were made for June. In May, OPEC+ countries increased their quotas by 206,000 b/d, which included volumes from the UAE, which announced its exit from OPEC and OPEC+ on April 28 (see “Ъ” from April 29).
Russia and Saudi Arabia will be able to increase their oil production in July by 62,000 b/d each, reaching 9.82 million and 10.35 million b/d respectively. The quota for Iraq in July has been raised by 26,000 b/d to 4.37 million b/d, for Kuwait by 16,000 b/d to 2.64 million b/d, for Kazakhstan by 10,000 b/d to 1.6 million b/d, for Algeria by 6,000 b/d to 995,000 b/d, and for Oman by 5,000 b/d to 831,000 b/d.
These figures do not take into account the compensation schedule for previously allowed overproduction. The OPEC+ statement indicates that the compensation period has been extended until the end of December 2026.
As noted in the OPEC+ statement, member countries will continue to monitor and assess market conditions, reaffirming the importance of a cautious approach and maintaining full flexibility regarding increases, suspensions, or cancellations of voluntary production adjustments.
The quotas for August will be determined at the OPEC+ meeting on July 5.
Senior analyst for the oil and gas and transportation sector at Euler, Andrey Polishchuk, believes that the easing of restrictions will continue at the same pace until September. "Afterward, a pause may occur, and the cartel might return to reducing restrictions in 2027 if demand growth expectations are confirmed," he says. According to Argus, if OPEC+ countries continue increasing quotas at the current pace, they will conclude the last package of voluntary restrictions by September.
Argus indicates that decisions to increase production targets remain more of a "theoretical exercise" for Saudi Arabia, Iraq, and Kuwait, which had to cut production due to the conflict in the Middle East and the closure of the Strait of Hormuz. A source from the agency noted that the removal of restrictions should be viewed as groundwork to increase production by these countries once the strait is opened.
According to Argus, in May, the total oil production of OPEC+ countries amounted to 29.53 million b/d, which is 9.6 million b/d less than before the onset of military actions in the Middle East, primarily due to cuts in the Persian Gulf countries.
Thus, according to Argus, oil production in Saudi Arabia increased by 250,000 b/d in May compared to April, reaching 6.57 million b/d, but remained 3.66 million b/d below the target. In Iran, production fell by 300,000 b/d to 2.65 million b/d. In Russia, according to Argus, production remained at 9 million b/d.
The CEO of Open Oil Market, Sergey Tereshkin, states that the increase in the production ceiling will enable OPEC+ countries to boost supply after the reopening of the Strait of Hormuz without crashing the market since the increase in production will align with the announced frameworks. "Overall, this strategy is quite rational: it will allow them to increase market share in the future without shocks, as occurred in March 2020 during the first collapse of the deal," he remarks. That year, Russia announced its exit from the OPEC+ deal effective April 1, and a new agreement was concluded from May 1.
Expert from the Financial University Igor Yushkov also believes that raising quotas to levels that do not restrict anyone helps avoid market shocks in the future, especially after the reopening of the Strait of Hormuz when prices may already decline. Russia, the expert notes, has not been meeting its quotas for several months due to a lack of investment in the sector and attacks on infrastructure, so returning to production above 9 million b/d would be a good result.
Source: Kommersant
