Petroleum exporting countries consider output increase amid supply disruptions
What's the story
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, are likely to raise their oil production quotas for September. The decision comes as the ongoing conflict in the Middle East continues to disrupt global energy supplies. Major players such as Saudi Arabia and Russia are expected to be at the forefront of this increase when they meet online today.
Production boost
Potential end of production increase series
According to Jorge Leon, an analyst at Rystad Energy, the expanded OPEC+ is likely to raise production by 188,000 barrels per day (bpd).
This would be in line with a trend of similar increases over the past few months.
However, Leon also cautions that this September increase could be the last in this series of production adjustments.
Strategy shift
Shift in OPEC+'s strategy from cuts to gradual production increase
From late 2022 to 2023, OPEC+ was worried about falling oil prices and agreed to cut production in three rounds, reducing total output by nearly six million bpd.
However, Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, Oman, and the UAE (which left the group on May 1) have changed their strategy since then.
They plan to gradually increase production starting in 2025.
Capacity constraints
Production capacity constraints and Middle East war impact on exports
Despite the planned increase in targets, many OPEC+ members can't produce as much oil as their official targets allow.
This is due to a "decline in production capacity," according to Giovanni Staunovo, an analyst at UBS.
The Gulf countries have also struggled with exports due to Iran's near-paralysis of the Strait of Hormuz amid the Middle East war.
Future prospects
Iraq's push for increased production and potential challenges ahead
It remains unclear when OPEC+ will be able to increase its oil volumes. Some member countries, like Iraq, are keen on significantly boosting production.
Currently, "the group is undergoing a process in setting maximum sustainable capacity levels for all member states," according to Staunovo.
Analysts at DNB Carnegie have warned that OPEC+ "faces potentially difficult talks over new production quotas" starting next year after the September increase.