OPEC+ agreed to increase quotas by 188k barrels per day in August, with cumulative increases approaching one million barrels since the outbreak of the US-Iran war.

OPEC+ is advancing a new round of production increases, reshaping the oil supply landscape.

On July 5, according to Bloomberg, OPEC+ has agreed to raise production quotas by 188k barrels per day in August. This increase continues the organization's established path of gradually unwinding previous output cuts, and marks the latest progress in the recovery of exports from Persian Gulf oil producers following the implementation of the interim peace agreement between the US and Iran.

Brent crude futures have fallen 43% from their wartime highs and are now hovering around $72 per barrel. As shipping in the Persian Gulf gradually returns to normal, signs of oversupply have emerged in key Asian markets. Some institutions predict that a global crude oil surplus may reoccur, and OPEC+ may soon face a dilemma between compressing production or competing for market share.

Cumulative quota increases approach one million barrels, unwinding of cuts nearing completion

The latest increase of 188k barrels per day will bring OPEC+'s total cumulative quota additions since the outbreak of the war to 940k barrels per day, equivalent to nearly 1% of global demand.

This production increase plan is being advanced jointly by seven major member states, led by Saudi Arabia and Russia. According to a previous Bloomberg report, OPEC+ has formulated a roadmap to fully unwind the two rounds of production cuts implemented in 2023 by September through continuous quota increases.

Currently, the third layer of production cuts is scheduled to remain in place until the end of the year, but some delegates indicated last month that the timeline for restarting this layer of cuts could be moved forward.

It is worth noting that the quota increase remains largely "on paper" — even before the blockade of the Strait of Hormuz, many member states were already unable to meet their quota limits due to actual capacity constraints, so the actual production recovery from the third layer of cuts is expected to be only a portion of the quota number.

Export recovery meets production bottlenecks, internal divisions within OPEC+ intensify

The interim peace agreement between the US and Iran has removed key obstacles for Persian Gulf oil producers to resume exports. According to tanker tracking data, oil exports from Saudi Arabia and the United Arab Emirates have largely returned to pre-war levels, and their shipping routes through the Strait of Hormuz have been successfully reopened. However, Bloomberg-compiled data shows that actual production in both countries remains well below normal levels, and the current export recovery relies mainly on drawing down inventory rather than a synchronous recovery in production capacity. A full release of output will still take time.

Pressure from supply recovery is already visible in the Asian market. With concentrated arrivals of Persian Gulf cargoes, key regional markets have experienced periodic oversupply, putting downward pressure on oil prices.

As production increases proceed, OPEC+'s internal cohesion is being tested. Founding member Iraq stated last month that it does not rule out leaving the organization if it cannot obtain a higher production quota. The UAE had already left OPEC in May of this year for similar reasons, expressing dissatisfaction with mandatory production restrictions. Abu Dhabi has significant idle capacity awaiting restart due to the war and has long-term expansion plans, which is expected to continue putting pressure on oil prices and its former allies.

Analysts point out that as supply continues to expand and oil prices come under pressure, OPEC+ will soon face a key choice: coordinate production cuts to support prices, or act independently to compete for market share, potentially triggering a price war. This direction will not only affect the global energy market landscape but also significantly impact investors' risk assessment and allocation decisions regarding crude oil assets.

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