The Sunday decision comes as shipping through the Strait of Hormuz continues to return to normal.
Dubai: OPEC+ has agreed to increase oil production quotas by a further 188,000 barrels per day (bpd) starting in August, extending a series of monthly output hikes as Gulf producers continue to recover from disruptions linked to the Middle East conflict.
The decision, announced after a virtual meeting on Sunday, aligned with market expectations and marks another step in the group’s gradual rollback of voluntary production cuts.
Energy ministers from Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman agreed to implement the production adjustment starting in August 2026, OPEC said in a statement.
The move comes as shipping through the Strait of Hormuz continues to return to normal after months of disruption, enabling oil-producing nations to gradually restore exports and ramp up production.
Why the production hike?
The latest increase follows a similar pattern seen in recent months, with OPEC+ gradually rolling back earlier production cuts.
Ahead of the meeting, analysts had broadly anticipated another increase of 188,000 bpd.
“We expect OPEC+ to continue unwinding the production cuts at the same pace as in previous months,” Giovanni Staunovo, a commodity analyst at UBS, told AFP.
“But for now, production is probably still below the group’s targets,” he added. The decision comes amid improving conditions in the Gulf following significant disruptions to regional oil exports caused by the conflict.
Hormuz disrupts oil flows
During the Middle East war, Iran’s actions around the Strait of Hormuz significantly disrupted oil exports from Gulf producers.
Between the first quarter of 2026 and May, combined output from Saudi Arabia, Iraq, and Kuwait — three of the countries included in the latest quota increase — fell by around six million barrels per day, according to OPEC data.
A turning point came on June 17, when Tehran and Washington signed a memorandum of understanding to remove obstacles to maritime traffic through the Strait of Hormuz while negotiations continue.
The agreement has since enabled shipping activity to recover steadily in recent weeks.
Normalising oil flows
Although tanker traffic through the Strait of Hormuz has improved, analysts say much of the oil currently reaching global markets has been drawn from inventories rather than newly resumed production.
Oil flows through the Strait may already have exceeded 10 million barrels per day, according to a US official cited by Bloomberg. Ole Hansen, head of commodity strategy at Saxo Bank, said that restarting production after extended shutdowns takes time.
“Assuming shipping continues to normalise, July will show an improvement, with August probably being the month where the pickup accelerates,” he said.
That gradual recovery is also a key reason OPEC+ has opted to increase quotas in steady monthly increments rather than implementing larger output hikes.
Sharp oil price fall
Oil prices have fallen sharply from the highs seen during the conflict, as markets increasingly anticipate a return to normal Gulf export flows. Nagham Hassan, Market Analyst at eToro, said the decline reflects shifting expectations as much as rising supply.
“Oil prices are driven by expectations as much as they are by physical supply,” she said, adding that the June 17 memorandum of understanding between Tehran and Washington, along with a US sanctions waiver allowing Iran to resume oil sales in US dollars, led markets to unwind much of the geopolitical risk premium previously built into crude prices.
She also noted that supply has risen faster than many investors had expected, with Russia exporting record volumes of crude and an estimated 67 million barrels of Iranian oil becoming eligible for export under the US sanctions waiver, according to Kpler estimates.
Can prices rise again?
Hassan said declining US oil inventories indicate that the physical market may still be tighter than current prices suggest.
According to the US Energy Information Administration, total US crude inventories, including the Strategic Petroleum Reserve, fell to 743.3 million barrels in the week ending June 19 — the lowest level since October 1984.
“If the market were genuinely as well supplied as current prices imply, strategic inventories would likely be stabilising or rebuilding rather than continuing to fall,” she said, adding that prices could rebound if diplomatic progress stalls or geopolitical tensions escalate again.
Improving oil markets
The additional OPEC+ supply reinforces expectations that global oil markets could become better supplied in the coming months.
Looking further ahead, analysts suggest supply growth could eventually outstrip demand. “For next year, everybody is anticipating a surplus,” said Jorge Leon, analyst at Rystad Energy.
In the near term, higher production is expected to help rebuild inventories that were depleted during the conflict.
However, once stockpiles are restored, analysts warn that continued supply growth could place renewed downward pressure on oil prices if it continues to exceed demand.
Fresh OPEC+ challenges
The group’s next major challenge may shift from restoring production to determining how output quotas are allocated among member countries.
Iraq has already requested that OPEC+ increase its production quota to account for output lost during the conflict, according to the Iraqi Oil Ministry. However, Hansen noted there is little urgency to approve the request, as Iraq’s production has not yet returned to pre-war levels.
“Iraq’s request may become part of the 2027 capacity review, where production baselines will be examined,” he said. Later this year, OPEC+ is expected to reassess members’ quotas based on updated production capacity.
Those discussions could prove contentious, with producers pushing for higher allowances even as markets face the risk of growing global oversupply.
