OPEC+ output increase has little impact while Strait of Hormuz remains closed, says Rystad

By Romel S. Gurky

OPEC+'s latest decision to increase oil production quotas will have little immediate impact on global oil markets as long as the Strait of Hormuz remains closed, according to Rystad Energy.

Jorge Leon, Head of Geopolitical Analysis at Rystad Energy, said the key issue is not the size of production quota increases but whether additional crude can physically reach the market.

"OPEC+'s decision to continue increasing production by 188,000 barrels per day confirms that the group remains on track to unwind the first tranche of voluntary cuts by September, if not earlier. But in the current market, the physical impact of such a decision would be close to zero," Leon said in an oil market update.

The closure of the Strait of Hormuz has disrupted exports from the Gulf region, limiting the market impact of higher production targets.

Rystad also highlighted challenges facing Russia, whose new production quota would rise to about 9.82 million barrels per day (bpd). Actual output, however, was estimated at around 9.2 million bpd in May, leaving a gap of roughly 600,000 bpd.

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According to Leon, the shortfall reflects the impact of continued drone attacks on Russian oil infrastructure as well as longer-term declines in production capacity.

Looking ahead, Rystad said a full reopening of the Strait of Hormuz could eventually create a sizeable supply surplus. The consultancy estimates the market could face an oversupply of as much as 5 million bpd in the months following a reopening, driven by returning OPEC+ barrels, rising U.S. shale production and weaker demand after a period of elevated oil prices.

The surplus could initially be absorbed by efforts to replenish strategic petroleum reserves and commercial inventories, but Rystad said those factors would only provide temporary support.

Leon said the next major challenge for OPEC+ would be maintaining cohesion among member countries once supplies normalize and the group is forced to decide whether additional production cuts are needed to balance the market.

"OPEC+ cohesion is easy to maintain when the market does the discipline for you. The real test is whether that holds when the barrels come back, stocks rebuild and members have to decide who cuts," he said.

Editing by Alexander Ginting