OPEC+ Output Hike Irrelevant Amid Iran Conflict Uncertainty

The OPEC+ decision to increase crude oil production quotas for September is seen as irrelevant in the current market due to disruptions caused by the Iran conflict. The Strait of Hormuz remains largely closed, and the threat to the nearby Bab el-Mandeb waterway remains unresolved. This makes it difficult for the oil-exporting group to ship what they have agreed to produce.

The seven members of OPEC+ undertaking voluntary output cuts - Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan, and Oman - agreed to increase production by 188,000 barrels per day (bpd) for September. However, the latest data from a Reuters survey shows that the eight members of OPEC with quotas pumped only 20.276 million bpd in June, which is 6.246 million bpd below the agreed target.

Russia's production of 8.928 million bpd in June was almost 1 million bpd below its agreed quota. The decision to wind back voluntary production cuts highlights the challenges facing oil exporters and importers. There are three main scenarios facing the crude oil market, with a high degree of uncertainty as to which is the most likely.