OPEC+ boosts output 188,000 bpd as Hormuz shipping recovers slowly

Iran's effective reopening of the Strait of Hormuz and OPEC+'s fifth consecutive production increase are failing to restore normal oil supply, with shipping volumes hovering at roughly half pre-war levels and war-risk insurance costs remaining 20 times the peacetime norm.

"The number was largely in line with expectation," Tony Sycamore, a market analyst at IG, said of OPEC+'s latest output increase. "With UAE leaving and when quotas are probably still not being met due to production still ramping up after the conflict — I'm not sure they mean much at the moment."

Brent crude futures for September delivery slipped 0.5 percent to $71.78 a barrel Monday, while WTI crude fell 0.3 percent to $68.49. OPEC+ members including Saudi Arabia, Russia and Iraq agreed Sunday to raise output targets by 188,000 barrels per day from August, the fifth straight monthly increase. Yet actual OPEC production in May stood at 33.13 million barrels per day, down from 42.77 million in February before the war began, according to OPEC figures. A Reuters survey showed June output recovered to 19.43 million barrels per day — still far below capacity.

The disconnect between OPEC+ quotas and actual supply means global oil markets remain tighter than headline production targets suggest. With Iran signaling new transit fees and management rules for the Strait of Hormuz, and US-Iran negotiations over the waterway's long-term status still unresolved, the path to normalized supply remains uncertain.

The UK Maritime Trade Operations reported that US naval escorts guided 70 commercial vessels through the strait between July 2 and July 4, compared with a pre-conflict average of 138 ships per day. MarineTraffic data showed 38 confirmed transits on July 2, down from 48 on July 1, versus roughly 130 daily crossings before the war. Gulf oil exports in June exceeded 10 million barrels per day, up more than 3 million from May, but remained 40 percent below pre-war levels, data compiled by Reuters show.

The cost of moving oil through the waterway reflects the lingering risk. War-risk insurance premiums have fallen from a peak of 5 percent to 10 percent of a vessel's value during the height of the conflict to about 2 percent, according to industry sources. That is still roughly 20 times the normal peacetime rate of less than 0.1 percent, keeping some shipping companies cautious about resuming full operations.

"Actual barrels have been constrained for months by the Strait of Hormuz blockade, falling well short of the quota," Fabien Yip, a market analyst at IG in Sydney, told Al Jazeera. "That constraint is now easing, driving prices down." Saudi Arabia has more than doubled its shipping volume since the June 17 ceasefire compared with the prior three months combined, Yip said, while Iran has pushed close to 50 million barrels of crude to market since the US naval blockade of Iranian ports was lifted.

Neil Crosby, an oil market analyst at Sparta Commodities in Singapore, described the OPEC quotas as "essentially meaningless" in the short term. "Perhaps in the medium term, if and when the Hormuz issue is sustainably solved, we can start to think more carefully about what the group needs and wants to supply," Crosby told Al Jazeera.

Additional supply is coming from outside the Gulf. Russia's crude shipments from its western ports hit a record high in June and are expected to remain at that level in July, as Ukrainian drone attacks on refineries have forced Moscow to boost crude exports, industry sources said.

Iran's ambassador to China, Abdolreza Rahmani Fazli, said at the World Peace Forum in Beijing that Tehran and Oman are jointly developing a new framework for administering the strait, including service fees for commercial vessels. China and other friendly nations would receive special consideration, he said. The US has maintained that Iran should not impose transit fees under any permanent arrangement, while Tehran argues it has the right to recover the costs of providing security.

The next OPEC+ meeting is scheduled for Aug. 2, when the group will review market conditions and could adjust its production plans. For now, the gap between what OPEC+ says it will produce and what it can actually ship remains the central tension in global oil markets.

This article is for informational purposes only and does not constitute investment advice.