OPEC Increases Quotas Again: Striving for Profitability Amid War
OPEC has announced an increase in oil production quotas starting in September, though most member states currently struggle to meet existing targets. Oil prices have declined due to expectations of easing tensions with Iran and the potential reopening of the Strait of Hormuz. Meanwhile, the USA has set an all-time record for oil exports, while China is mitigating the global supply decline by reducing internal consumption.
The international oil cartel OPEC has announced that production quotas will increase by 188,000 barrels per day starting in September. This sixth consecutive quota hike will remain largely "on paper" as the Strait of Hormuz remains blocked, forcing Gulf states to utilize bypass routes to maintain exports. The withdrawal of the UAE from OPEC last May has further weakened the cartel, which once held firm control over global oil prices. Meanwhile, US oil exports have reached an all-time high, surpassing the record set just last month.
Currently, these production quotas are largely symbolic, as OPEC members are struggling to meet even their existing targets. According to a Reuters assessment, OPEC members are producing only about 20 million barrels per day, 6 million short of their declared quotas. This is primarily due to the blockade of the Strait of Hormuz. Although Saudi Arabia operates the East-West pipeline to reach the Red Sea, its capacity is insufficient to meet the country's full quota. Furthermore, the southern exit of the Red Sea at the Bab el-Mandeb Strait is blocked by Houthi forces in Yemen, leaving only the limited capacity of the Suez Canal and the "Sumed" pipeline as viable northern routes.
Why Oil Prices Fell
Russia, an "OPEC+" member currently under sanctions, is also failing to meet its cartel-assigned quotas. The UAE, which withdrew from the organization last May, is maximizing exports through the port of Fujairah, located outside the strait, though this route also faces limitations.
It is difficult to attribute the drop in Brent crude prices to $83 per barrel solely to the OPEC announcement. Market sentiment appears driven by the cessation of American attacks in Iran and the potential for a framework agreement. While a formal deal remains distant, the mere possibility of the Strait of Hormuz reopening is encouraging the market. Should the strait reopen, OPEC quotas would regain relevance, likely benefiting the UAE, which is no longer bound by them.
5.73 million barrels per day — the record volume of US oil exports.
188 thousand barrels — the daily addition to OPEC export quotas.
US Export Record
Today, the global oil market is increasingly supplied by Texas rather than the Persian Gulf. The US Department of Energy recorded an all-time high in oil exports in May, averaging 5.73 million barrels per day, breaking the record set in April. This represents a complete reversal from the situation a decade ago, when the USA was a net oil importer.
Simultaneously, China—the world's largest oil importer—has hit a ten-year low in oil imports, according to the US Department of Energy. China has effectively "mobilized" to absorb the decline in global supply, preventing a much sharper spike in oil prices. This is being achieved through reduced internal consumption and the shutdown of domestic refineries that previously exported fuel abroad.
