Opec+ 7 to further relax output targets

Seven core Opec+ members are expected to further relax their production targets for July when they meet on 7 June, although this will not lead to any real output increases until the strait of Hormuz reopens.

Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria and Oman still have about 564,000 b/d of output left to unwind from a 1.65mn b/d set of cuts agreed in April 2023. The UAE, which left Opec and Opec+ on 1 May, was also a part of those cuts. In their previous meeting, the seven members agreed to increase their collective targets by 188,000 b/d for June. Should they continue to increase their targets at this rate, the group will finish unwinding their last remaining set of voluntary cuts by September. The decisions to increase production targets remain something of a theoretical exercise for Saudi Arabia, Iraq and Kuwait, which have had to shut in huge swathes of their output due to the US-Iran war and the effective closure of the strait of Hormuz.

A delegate source says the unwinding of the cuts should be seen as a way of preparing the ground for the three members to raise production once the strait reopens. Saudi Arabia would be able to raise its production to 10.478mn b/d from 6.57mn b/d in May once the cuts are fully unwound. Iraq would be able to increase to 4.431mn b/d from 1.55mn b/d in May, while Kuwait would be allowed to boost production to 2.676mn b/d from 580,000 b/d.

The source says there is a shared understanding within the group that no member will operate at full capacity or exceed targets to make up for lost output during the US-Iran war. Still, any output increases from Mideast Gulf members is contingent on being able to freely export their crude through the strait, which has remained effectively shut for more than three months.

US president Donald Trump for weeks has described a US-Iran deal to end the war as practically finalised, although an actual agreement has proven elusive. There are also questions about how quickly members will be able to restore production and whether any lasting damage will result from the shutdowns.

Baseline reset

The wider Opec+ alliance is also pushing full steam ahead with a plan to update production baselines for each member that will set new output targets from 2027, a source says. The process to assess members' maximum sustainable production capacity is being carried out by US consultancy DeGolyer and MacNaughton. It began in January and is set to conclude in September, allowing three months to fine-tune targets before implementation.

But as things stand, Opec+ output remains massively curtailed. Production by all members of the alliance rose by 50,000 b/d on the month to 29.53mn b/d in May, according to Argus estimates (see table). This represents a 9.6mn b/d drop on production before the start of the Iran war on 28 February. Most of this fall has been driven by Mideast Gulf members of the alliance Saudi Arabia, Iraq, Kuwait, Bahrain and Iran, which have collectively seen their output fall by more than 10mn b/d from pre-war levels.

The biggest rise on the month in May came from Saudi Arabia, which boosted output by 250,000 b/d as it burnt more oil for power generation. Iraq increased production by about 150,000 b/d, also partly to meet increased power generation demand. Iran saw the sharpest drop last month as the US blockade of the country's ports began to bite. Iran's output fell by 300,000 b/d to 2.65mn b/d, with further drops likely as the country's storage sites fill up. Russia's production remained curtailed at 9mn b/d, under pressure from continuing attacks on its oil infrastructure by Ukraine.

By Aydin Calik and Nader Itayim