SunSirs: Hormuz Shipping Gradually Resumes; OPEC+ Approves Further Production Hikes; Fears of Worsening Oil Supply Glut

According to Sina Finance, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) issued a statement on Sunday agreeing to further raise production targets starting in August. This move will further increase global oil supplies at a time when oil prices are already retreating as exports through the Strait of Hormuz gradually resume.

During a virtual meeting, the producer group agreed to increase production quotas by 188,000 barrels per day (bpd) starting in August. This marks the third consecutive month the group has raised its oil production targets, gradually unwinding the production cuts implemented since 2023.

The seven core OPEC+ members responsible for setting supply policy—Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman—have cumulatively raised production quotas by nearly 800,000 bpd between April and July.

With the August production increase plan now finalized, if core OPEC+ members raise production by a similar margin at their next meeting on August 2, they will have completely reversed the 2023 production cuts. Media reports indicate that OPEC+ has established a roadmap to fully unwind the two rounds of 2023 production cuts by September through continued quota increases.

However, production target hikes in recent months have largely remained on paper due to the closure of the Strait of Hormuz—caused by the US-Iran conflict—and restrictions on exports from key OPEC+ members.

OPEC data shows that OPEC+ oil production fell to 33.13 million bpd in May, down from 42.77 million bpd in February. Production began to recover in June, aided by US efforts to assist the UAE and other OPEC+ nations in increasing oil exports, though levels remain below pre-war figures.

Gradual Resumption of Shipping via Hormuz

Oil exports through the Strait of Hormuz are currently continuing to recover following months of disruption. Shipping through the Strait of Hormuz had been paralyzed since the US and Israel launched military operations against Iran in late February; operations only began to recover gradually after the two sides reached an agreement in mid-June.

Reports indicate that following the ceasefire agreement between the US and Iran, oil exports from the Gulf region in June rose by more than 3 million barrels per day (bpd) compared to May, surpassing the 10 million bpd mark. However, total export volumes remain approximately 40% below pre-war levels.

Despite lingering supply disruptions, oil prices have retreated to pre-war levels, driven by the gradual resumption of shipping through the Strait, increased exports from non-Middle Eastern producers, and the coordinated release of record global strategic reserves orchestrated by the International Energy Agency (IEA).

A memorandum of understanding between the US and Iran aimed at ending the conflict has led traders to believe that oil supplies will eventually return to normal levels.

Brent crude futures have fallen 43% from their wartime peak and are currently hovering around $72 per barrel, returning to trading levels seen before the outbreak of the conflict with Iran.

As shipping through the Strait of Hormuz gradually returns to normal, several investment banks have recently lowered their crude oil price targets and forecast a potential return to a global supply glut. Analysts suggest that OPEC+ may soon face a dilemma: whether to cut production or compete for market share.

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