OPEC+ Decides on Modest Oil Production Increase
On Sunday, OPEC+ agreed to boost oil production quotas by 206,000 barrels per day for May. However, this increase might not translate into actual production as major member nations face constraints due to ongoing conflicts involving the U.S., Israel, and Iran.
The ongoing war has effectively blocked the Strait of Hormuz, a critical oil shipping route, since late February. This situation has notably diminished exports from major OPEC+ contributors like Saudi Arabia, the UAE, Kuwait, and Iraq. Interestingly, Iraq had managed to increase its output significantly even before the conflict escalated.
As a result of these disruptions, crude oil prices have surged to nearly $120 a barrel, reaching a four-year high. This spike has had a ripple effect, leading to increased transportation fuel costs and raising concerns for consumers and businesses worldwide, prompting governmental measures aimed at conservation.
While the agreed increase of 206,000 barrels per day signals an intention to ramp up production once the Strait reopens, it represents less than 2% of the oil supply affected by the ongoing closure. Consulting firm Energy Aspects characterized this increase as “academic” as long as the disruption continues.
“In reality, only a few barrels are being added to the market,” noted Jorge León, a former OPEC official now analyzing geopolitical issues at Rystad Energy. He emphasized that if the Strait of Hormuz remains closed, any additional barrels from OPEC+ won’t be particularly valuable.
During the online meeting on Sunday, eight member countries of OPEC+ concurred to raise oil production in May. However, the issues aren’t limited to the Gulf, as countries like Russia are also facing production challenges due to Western sanctions and war-related infrastructure damage in Ukraine.
The Gulf states themselves are dealing with significant infrastructure damage from missile and drone strikes. Officials mentioned that even if the conflict ceased and the Strait reopened immediately, it could take several months to stabilize operations and meet production goals.
In a related development, another OPEC+ group, the Joint Ministerial Oversight Committee, which also convened on Sunday, expressed worries about the ongoing attacks on energy infrastructures, indicating that repairs are costly and slow, ultimately affecting supplies.
Despite the conflict, Iran declared on Saturday that Iraq was not subject to restrictions navigating through Hormuz, and subsequent shipping data indicated that tankers were transporting Iraqi crude. However, it remains uncertain whether more vessels will risk traversing the area.
The production increase for May mirrors the agreement made during the last meeting in April, right as the war began impacting oil flows. A month into the conflict, the largest supply disruption in oil history is estimated to have eliminated between 12 million and 15 million barrels a day, or up to 15% of total global supplies.
JPMorgan projected on Thursday that oil prices might surpass the record $150 mark if the disruption through Hormuz continues until mid-May. OPEC+ is composed of 22 member nations, including Iran, but in recent years, only the eight countries participating in the latest meeting have been making collective decisions about production while gradually reversing previous cuts agreed upon for 2025 to recover market share.
From April to December 2025, these eight nations have raised their production quotas by around 2.9 million barrels per day but paused increases between January and March.
The next meeting for the eight members is scheduled for May 3rd.
