OPEC+ agrees to increase production by 188,000 barrels per day in June, but it may only be a "paper number."

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OPEC+ has approved a third consecutive increase in production quotas, but this decision has almost no impact on actual supply until the blockade of the Strait of Hormuz is lifted.

On May 3, according to Reuters, seven OPEC+ member countries have agreed in principle to raise the June production target by about 188,000 barrels per day, and formally confirmed the decision today. Meanwhile, the UAE has officially withdrawn from OPEC+ this week, and its share has been excluded from the latest increase plan.

Due to the blockade of the Strait of Hormuz caused by the US-Iran war, oil prices soared above $125 per barrel this week, hitting a four-year high. Analysts have begun warning of a large-scale global aviation fuel shortage within one to two months and cautioning that global inflation faces a new wave of shocks.

Against this backdrop, the OPEC+ production increase is seen more as a policy gesture by the market, rather than a substantial relief of supply tightness. The seven countries will meet again on June 7, at which point the direction of the situation will be the market’s focus.

The report said that oil executives from the Gulf region and global oil traders believe that until the Strait of Hormuz is reopened, this production increase decision will basically remain on paper; even if the strait resumes navigation, it would still take weeks or even months for oil flows to normalize.

The decision to increase production is largely symbolic; war is the key variable

The meeting was attended by Saudi Arabia, Iraq, Kuwait, Algeria, Kazakhstan, Russia, and Oman. According to Reuters, citing sources, this increase of 188,000 barrels per day is equivalent to last month's increase of 206,000 barrels per day, minus the UAE's share.

The core issue is that among the seven countries listed above, Saudi Arabia, Iraq, and Kuwait were the only OPEC+ members with actual spare production capacity before the conflict erupted, but the export routes of these three countries are currently blocked due to the Strait of Hormuz’s closure. According to sources, the purpose of this production increase decision is to send a signal to the market—that once the war ends, OPEC+ is ready to boost supply at any time.

According to an OPEC report released last month, the average crude oil output of all member countries in March was 35.06 million barrels per day, a sharp decrease of 7.7 million barrels per day from February, with Iraq and Saudi Arabia seeing the biggest declines due to export restrictions.

UAE's departure reshapes organizational structure

Meanwhile, the report said the UAE officially withdrew from OPEC+ on May 1, and its quota has been removed from this production increase plan.

After the UAE's departure, the total number of OPEC+ members dropped to 21, including Iran, but in recent years, only the seven countries mentioned above plus the UAE have actually participated in monthly production decisions.

Although Iran is an OPEC+ member, it did not participate in Sunday’s meeting. According to Reuters, Iran’s own exports have already been greatly restricted by the U.S. blockade implemented in April.

Sources said that this move by OPEC+ sends a signal of "business as usual," showing that the organization is willing to increase supply after the war, while also maintaining the established pace of production increases in the wake of the UAE's departure.

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