OPEC+ Approves 188,000 bpd Output Hike as Hormuz Reopens

The Alliance Expands Supply Despite Disruption

OPEC+ confirmed plans to raise production quotas by 188,000 barrels per day starting in August, pressing ahead with a schedule of monthly supply increases even as the Strait of Hormuz remains partially disrupted. The decision, announced July 5 following an online meeting, marks the latest step in unwinding cuts first agreed in 2023.

Seven core producers within the alliance have now committed to adding almost 800,000 bpd from April through July. Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan and Oman form the group driving the rollback of a 1.65 million bpd reduction that took effect when crude markets looked softer.

Yet much of that planned increase has stayed theoretical. The US-Israeli conflict with Iran shut the Strait of Hormuz to tanker traffic from key producers including Saudi Arabia, Kuwait and Iraq. OPEC+ output dropped to 33.13 million bpd in May, according to the group's data, down from 42.77 million bpd in February.

Hormuz Traffic Slowly Returns

Production began recovering in June after the United States helped the UAE and other members find alternative export routes. Tankers are moving again through the strait, though volumes remain below February levels. A memorandum of understanding aimed at ending hostilities has given traders confidence that supply will normalize, even if the timeline remains uncertain.

The partial reopening has coincided with a sharp retreat in oil prices. Brent crude traded near $72 per barrel on July 3, erasing gains that had pushed prices above $120 during the height of the conflict in late February and early March. The decline reflects not only the prospect of restored Middle East flows but also weaker Chinese import demand, higher output from producers outside the region, and a coordinated release of strategic reserves organized by the International Energy Agency.

Internal Tensions Over Quotas

The alliance faces structural questions beyond the immediate supply picture. The UAE formally exited OPEC+ in late April, frustrated by production restraints it considered incompatible with its capacity expansion plans. The departure removes a significant producer from the group's quota framework and shifts the arithmetic of future cuts or increases.

Iraq has also signaled dissatisfaction, seeking higher production allocations. These tensions underscore the balancing act OPEC+ faces as it tries to manage supply in a market where demand signals remain mixed and geopolitical risk persists.

According to calculations based on the group's announcements, the seven producers will have roughly 379,000 bpd of the original 2023 cut left to restore after the August increase, adjusted for the UAE's exit effective May 1. If they proceed with another increment of similar size in September, the 2023 reduction will be fully unwound by the fourth quarter.

Market Reaction and Outlook

UBS analyst Giovanni Staunovo noted that the decision to continue unwinding cuts was widely anticipated. He added that near-term attention will center on how many tankers successfully transit the Strait of Hormuz and whether Chinese crude imports rebound from recent lows.

The return of prices to pre-war levels suggests the market is pricing in a gradual normalization of Middle East supply, even as physical flows lag the quota increases. Non-OPEC producers have stepped up exports during the disruption, and global inventories have been drawn down to cushion the shortfall.

For Asia's oil importers, the outlook hinges on both the pace of Hormuz reopening and the trajectory of OPEC+ policy through the second half of the year. With the next meeting scheduled for August 2, the alliance will have an opportunity to adjust course if demand weakens further or if geopolitical risks flare again. The decision to proceed with the August hike signals confidence that supply can be absorbed, but the market remains sensitive to shifts in Chinese consumption and any renewed disruption in the Gulf.