OPEC+ Quota Increases Yet to Yield Production Gains

Arabian Post Staff -Dubai
OPEC+ has escalated production quotas by roughly one million barrels per day from March to June, aiming to reactivate idled capacity, yet actual output across the group remains flat, according to data from Morgan Stanley analysts led by Martijn Rats. Saudi Arabia in particular shows no detectable uptick, underscoring a lag between policy shifts and market reality.
The decision to accelerate quota rollbacks follows sustained cuts totalling around 2.2 million b/d, initiated in early 2023 to support prices. With non‑OPEC supply growing and global demand weakening, the efficacy of supply restraint has waned, prompting OPEC+ to pivot back to restoring output gradually. Despite headline quota increases of approximately 137,000 b/d per month since April, actual deliveries appear limited.
ADVERTISEMENT
Underlying structural factors are at play. Several members—most notably Kazakhstan and Iraq—have reportedly exceeded their quotas, diluting the announced gains. Saudi Arabia, with substantial spare capacity, stands out as the most capable contributor to any genuine rise in output. However, its contribution remains muted so far. Analysts suggest this reflects a strategic choice to reclaim market share rather than an immediate scale-up.
Analysts at Morgan Stanley project modest growth: between June and September, OPEC+ core members may add around 420,000 b/d—approximately half of which could originate from Saudi Arabia. Even then, actual production may fall well short of quotas, with implementation challenges persisting.
This gap between policy and output carries market implications. With more supply forecast, Morgan Stanley predicts a surplus of roughly 800,000 b/d in Q4 and 1.5–2.0 million b/d in early 2026, pressuring Brent crude prices down toward the mid‑$50s. Currently, Brent trades near $66 per barrel—11% below its level at the start of the year.
In parallel, geopolitical friction between Saudi Arabia and Russia surfaced during policy talks. Riyadh favoured a more aggressive quota rollback, while Moscow, alongside Oman and Algeria, urged caution amid worries about demand resilience. The compromise settled on another 411,000 b/d increase for July, a repetition of earlier monthly hikes.
Markets initially responded positively: oil prices climbed 3–4% following the July quota announcement, with Brent touching the mid‑$60s. That rebound, however, reflected relief over continuity rather than enthusiasm over fresh supply. Wildfires in Canada and refinery maintenance cycles were also cited as supporting factors.
Across OPEC+, reliability of quotas remains a concern. While some members exceed limits, others—constrained by infrastructure or investment—may struggle to ramp up. Saudi Arabia's spare capacity remains central, but constraints on countries like Russia complicate the outlook even as OPEC+ restores cut volumes faster than planned.
Meanwhile, non‑OPEC supply continues to grow, particularly in the U.S., Canada, Guyana and Brazil—with forecast increases of about 1.1 million b/d in 2025. That expansion alone could outpace expected global demand growth of 800,000 b/d, risking oversupply irrespective of OPEC+ decisions.
With a full quota restoration now likely by September 2025—months ahead of the original schedule—and non‑OPEC volumes outweighing demand growth, the market faces a mounting supply glut heading into late 2025 and 2026. Analysts caution that idled capacity may remain untouched for months beyond official quotas, delaying meaningful production gains.
As OPEC+ enters this intensified phase of quota reopening, its central challenge remains execution rather than announcement. High-profile policy shifts are yet to translate into barrels at market, and the divergence between targets and reality could widen over the coming quarters. Market players are now watching whether Saudi Arabia leads by example or the rhetoric fades before the pumps do.

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

Arabian Post

14 hours ago

• Arabian Post

China's Iran Oil Bet Hits Strategic Snag

China is confronting significant disruption to its Iranian crude oil supply, risking both its energy security and geopolitical ambitions in the Middle East. With over 90 per cent of Iran's oil exports directed to China via Kpler, the contraction of that flow places Beijing's $400 billion 2021 cooperation deal in jeopardy. Major Chinese independent refiners, the so‑called 'teapots' in Shandong province, are enduring mounting losses as deepening discounts on Iranian oil clash with soaring global prices. Discounts have widened to between $3.30 and $3.50 a barrel against ICE Brent for July cargoes – up from approximately $2.50 in June – contributing to refinery utilisation dropping to around 51 per cent, down from 64 per cent a year ago. Despite Israel's airstrikes targeting Iranian energy infrastructure and concerns over potential U.S. sanctions, Iran has maintained its exports through a shadow tanker fleet and strategic logistics adjustments. Kpler reports that crude loadings have reached a five‑week high of about 2.2 million barrels per day, assisted by the use of a less exposed jetty on Kharg Island and pre‑positioning of floating stocks nearer to China – including approximately 8 million barrels stationed offshore China. ADVERTISEMENT In 2024, Iranian shipments to China peaked at 1.6 million barrels per day, but that volume had already declined to roughly 740,000 bpd by April 2025, as broader Middle East instability and tightening sanctions exerted pressure. Rival supplies from OPEC+ producers like Saudi Arabia and the UAE may partially compensate, yet analysts emphasise that prolonged disruption would still erode Beijing's strategic leverage and diplomatic role in the region. For China, this dependence on Iranian crude is part of a broader ambition to deepen its influence across the Middle East as a counterweight to the West. The initial rationale behind the 25‑year deal encompassed energy security, infrastructure projects, trade expansion, and regional diplomacy. But the conflict's escalation threatens those objectives, undermining China's established pipeline for cheap oil and complicating its efforts to mediate regional tensions. Economists note the urgency for Beijing to accelerate its shift toward renewable energy and domestic self-reliance. China had already reached a milestone with renewables comprising 56 per cent of its electricity capacity in 2024. The current moment has intensified calls to reduce external vulnerabilities and accelerate electrification. At present, the Chinese government has refrained from military engagement, calling for de-escalation and abstaining from direct intervention in support of Iran. Instead, it is pursuing regional diplomacy while guarding its considerable investments. A Chinese foreign ministry spokesperson emphasised the need to 'prevent the region from spiralling into greater turmoil', particularly to secure stable energy imports. However, should the conflict deepen, or if key Iranian oil infrastructure suffers irreparable damage, China's reliance on opaque supply routes and shadow trading may no longer suffice. Its medium‑term strategy of presenting itself as a credible peace broker in the Middle East faces growing strain amid diverging interests between Iran and Gulf states. China appears poised to rely more heavily on Gulf crude, yet that reliance comes with its own geopolitical calculations. Riyadh and Abu Dhabi together hold significant spare capacity – over 4 million barrels per day – which may cushion global shocks but do little to salvage China's ambition to sustain influence via energy partnerships. The unfolding developments in the Israel–Iran arena have exposed strategic fissures in a partnership that once appeared unshakeable. Even as Iran adapts tactically to maintain its export pipeline to China, Beijing must confront the reality that maintaining influence in the region demands resilience beyond discounted barrels and shadow fleets.

Gulf Today

14 hours ago

• Gulf Today

Oil drops, stocks climb as Trump delays Iran move

Oil prices retreated on Friday while US and European stock markets gained ground as concerns over a war escalation in Iran eased. International crude benchmark contract Brent dropped more than two per cent, weighing on the share prices of energy majors, after US President Donald Trump said Thursday that he would decide whether to join Israel's strikes on Iran within the next two weeks. Traders said it suggested Trump preferred negotiations to end the fighting, as top European diplomats met Iran's Foreign Minister Abbas Araghchi in Geneva on Friday to discuss a "diplomatic solution" to end the war. US indices opened slightly higher on Friday, though analysts said volumes were likely to be lacklustre with many traders taking a four-day weekend after Thursday's Juneteenth holiday. European stock markets were up in afternoon deals while Asian equity indices closed out the week mixed. "News that president Trump would delay any decision on joining Israel's attacks against Iran has boosted the market mood," said Kathleen Brooks, an analyst at trading firm XTB. "Brent crude has dropped... as traders price out the worst-case scenario for geopolitics," she said. Crude futures had soared and global equities slumped in recent sessions as the Israel-Iran conflict showed no signs of easing, with investors pricing in the risk of tighter oil supplies that would likely weigh on economic growth. "While the immediate prospect of a US intervention in Iran may have diminished, the fact this is reportedly a two-week hiatus means it will remain a live issue for the markets going into next week," said Dan Coatsworth, an investment analyst at AJ Bell. "A meeting of European ministers with their Iranian counterparts to try and formulate a deal today could be crucial." While the Middle East crisis continues to absorb most of the news, Trump's trade war remains a major obstacle for investors as the end of a 90-day pause on his April 2 tariff blitz approaches. "While the worst of the tariffs have been paused, we suspect it won't be until those deadlines approach that new agreements may be finalised," said David Sekera, chief US market strategist at Morningstar. "Until then, as news emerges regarding the progress and substance of trade negotiations, these headlines could have an outsize positive or negative impact on markets," he said. In Europe, Eutelsat shares soared 27 per cent on the Paris stock exchange after the French government said it would lead a 1.35 billion euros ($1.5 billion) in the European satellite operator. French President Emmanuel Macron urged a "speedy reconquest" for Europe in the space sector in the face of growing American competition, in a speech at the Paris Air Show. Agence France-Presse

Arabian Post

16 hours ago

• Arabian Post

Gulf Growth Gains Amid Israel–Iran Strains

Gulf economies—led by the UAE and Saudi Arabia—are forecast to sustain stronger growth, underpinned by higher oil output and robust non-oil activity, even as tensions between Israel and Iran add volatility to the region's economic outlook. Capital Economics estimates the UAE economy will expand by approximately 5.8 percent this year, propelled by elevated oil production and expansion in tourism, finance and construction sectors. The non-oil sector continues to account for three‑quarters of national output, demonstrating effective economic diversification and a supportive fiscal framework. In Saudi Arabia, output has received a boost from OPEC+ adjustments. Riyadh, urging increased production, has reversed voluntary cuts of the past five years—liberating more oil onto global markets. This strategic move supports GDP growth, although economists caution it may obscure a weakening non-oil sector if public spending tightens. ADVERTISEMENT The Israel‑Iran confrontation has prised markets into cautious territory. Brent crude spiked above $78 per barrel before cooling slightly, driven by anxiety over possible supply shocks—from disruptions in Iran or through the Strait of Hormuz—though analysts generally see deep disruption as unlikely. Asian refiners, including in India, have shifted toward securing Middle East crude via term contracts, avoiding speculative premiums in spot markets. The UAE's stock markets reflect this duality. Following earlier losses, the Dubai and Abu Dhabi indices rebounded—rising 1.6 percent and 1 percent respectively—as hopes of de‑escalation emerged, buoyed by diplomatic mediation efforts. Nevertheless, Capital Economics warns that if the conflict deepens, Gulf growth advantages could erode. Iran's economy—roughly 0.85 percent of global GDP—might shrink by around 50 percent in a prolonged conflict, impacting trading partners; the UAE's exports to Iran alone represent 1.2 percent of GDP. A wider regional confrontation could trigger oil-price spikes, creating destabilising ripple effects. Yet projections remain cautiously optimistic. Capital Economics outlines a scenario in which hostilities subside within weeks: oil prices normalise near $65 per barrel and Gulf GDP growth remains robust. Oxford Economics likewise suggests that even in more severe oil‑shock scenarios, the macroeconomic impact may be limited and manageable. Longer‑term resilience in the Gulf is being supported by strategic diversification initiatives. UAE's efforts to expand non-oil industries through tourism, financial services and infrastructure are dovetailing with Saudi Arabia's Vision 2030—including privatisation of state assets and SME expansion to lift non-oil GDP share. Nevertheless, analysts assert that non‑oil sectors in Saudi Arabia are showing signs of strain. Early signs of contraction coincide with public spending consolidation, even as oil revenues rise. UAE diversification, in contrast, has maintained momentum, with forecasts rising from 4 percent in 2024 to 4.5 percent in 2025 and 5.5 percent in 2026. Region‑wide growth expectations have been revised upward—GCC economies are now seen expanding around 4.4 percent this year, a 0.4 point upgrade—driven by faster OPEC+ output and sustained non-oil activity in key states. Despite these positive forecasts, cautious tones persist. Market volatility has increased across bonds, equities and currencies. A protracted conflict—which includes threats to Strait of Hormuz oil shipments—could have serious economic consequences.