Hormuz Closure May Blunt Impact of OPEC+ Production Increase

NEW DELHI: Oil producing countries OPEC+ on Sunday agreed to increase their oil production quota for June by 188,000 barrels a day, making it the third hike since disruption in crude supplies due to closure of Strait of Hormuz.Experts, however, believe that the increase on paper in production quota is likely to have limited impact on real supply, as much of the spare production capacity of OPEC+ members is concentrated in Gulf countries, where exports remain constrained by blockade of Strait of Hormuz, which accounts for over 20% of global oil transit. Russian output too has been disrupted by drone attacks.Prashant Vasisht, senior vice president and co-group head at ratings agency ICRA, said that the increased production may never reach the market unless the trade route reopens. “Most of the increase will not come to market in terms of physical delivery if the blockade of Strait of Hormuz continues. So, the impact on India or other crude consumers, or crude prices will not be much,” he said.Jorge Leon, analyst at Rystad Energy, told AFP that the group appeared to be sending “a two-layer message” that the UAE’s departure would not disrupt functioning of OPEC+ and that the alliance still retains influence over global oil markets despite disruption in oil trade because of West Asia conflict.Crude oil output from all OPEC+ members averaged nearly 35 million bpd in March, down 7.7 million bpd from Feb, the group said in a report last month. The decision to increase the production quota was taken by the seven OPEC+ members as part of “their collective commitment to support oil market stability” in an online meeting, as global crude prices continue to put pressure on economies around the world. Global benchmark Brent crude hovered around $110 a barrel after reaching a record high of $126 earlier last week. The price of the Indian oil basket was over $118.7 a barrel, last.The latest increase in quota by OPEC+ is the same as that for May, minus the share of the UAE, which left the group on May 1. The group had announced a daily production increase of 206,000 barrels in both March and April. Though OPEC+ includes 21 members, including Iran, in recent years only seven nations -- Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia and Saudi Arabia -- along with the UAE have been involved in monthly production decisions.OPEC accounts for about 40% of the world’s crude oil production and about 80% of world’s proven reserves.