Eight countries from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, agreed on April 5 to a supply increase of 206,000 barrels per day for May in order to stabilize the markets, but warned that it will take a long time to restore energy assets already damaged or taken offline by the Iran war.
The eight countries, which previously announced additional voluntary adjustments in April and November 2023, namely Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria, and Oman agreed to raise quotas by 206,000 barrels per day for May.
But while this decision signals OPEC’s willingness to increase output, in this context it’s mostly symbolic in the medium term due to production and shipping bottlenecks. Exports depend on the passage of tankers through the Strait of Hormuz, a critical Gulf waterway through which about one-fifth of the world’s oil and liquified natural gas (LNG) supplies transit. Although some ships have passed through the Strait, traffic remains heavily disrupted due to the Iran war. Moreover, the increase of 206,000 barrels per day represents less than 2 percent of the supply disrupted by the Hormuz closure.
U.S. and Iran agree to a two-week ceasefire
In the latest development, on Tuesday evening (April 7), the U.S. and Iran agreed to a conditional two-week ceasefire deal that includes the reopening of the key Strait of Hormuz waterway. In a social media post, U.S. President Donald Trump said: “I agree to suspend the bombing and attack of Iran for a period of two weeks… subject to the Islamic Republic of Iran agreeing to the COMPLETE, IMMEDIATE, and SAFE OPENING of the Strait of Hormuz.”
In a statement after Trump’s ceasefire message, Iranian Foreign Minister Seyed Abbas Araghchi said that Iran would allow safe passage through the Hormuz “via coordination with Iran’s armed forces,” BBC reported. He said that the U.S. had accepted the “general framework” of the Iranian 10-point plan.
Global oil prices have fallen sharply after the announcement of the ceasefire that includes the reopening of the Hormuz waterway. On March 8, the price of benchmark Brent crude fell by about 13 percent to $94.80 a barrel. The price of U.S. crude oil slid more than 15 percent to around $95 per barrel, a sharp drop after it traded as high as $117 on March 7. But oil prices clearly remain substantially higher than before the U.S. and Israel attack on Iran on February 28.
The eight OPEC+ countries met virtually on April 5, to review global market conditions and outlook. “In their collective commitment to support oil market stability, the eight participating countries decided to implement a production adjustment of 206,000 barrels per day from the 1.65 million barrels per day additional voluntary adjustments announced in April 2023,” OPEC said in a press release, adding that this adjustment will be implemented in May. The 1.65 million barrels per day may be returned in part or in full subject to evolving market conditions and in a gradual manner.
OPEC said the countries will continue to closely monitor and assess market conditions, and in their continuous efforts to support market stability, they reaffirmed the importance of adopting a cautious approach and retaining full flexibility to increase, pause or reverse the phase out of the voluntary production adjustments, including reversing the previously implemented voluntary adjustments of the 2.2 million barrels per day announced in November 2023.
The eight OPEC+ countries also noted that this measure will provide an opportunity for the participating countries to accelerate their compensation.
The eight OPEC+ countries reiterated their collective commitment to achieve full conformity with the Declaration of Cooperation (DoC), including the additional voluntary production adjustments that will be monitored by the Joint Ministerial Monitoring Committee (JMMC). They also confirmed their intention to fully compensate for any overproduced volume since January 2024.
In addition, the eight OPEC+ countries reiterated the JMMC’s statement for its 65th meeting, highlighting the critical importance of safeguarding international maritime routes to ensure the uninterrupted flow of energy.
According to a Bloomberg survey, OPEC’s crude oil production plunged by the most in at least four decades in March as conflict in the Middle East throttled exports from key members. Output from OPEC collapsed by 7.56 million barrels a day — or by about 25 percent — to 22 million barrels a day, the survey showed. The March slump is the largest for a single month in data compiled by Bloomberg extending back to 1989, though the organization did cut more supply over a two-month span in 2020 when global fuel demand collapsed during the Covid-19 pandemic.
Concern over attacks on energy assets
The eight OPEC+ countries, which will hold monthly meetings to review market conditions, conformity, and compensation, also expressed concern on April 5 regarding attacks on energy infrastructure, noting that “restoring damaged energy assets to full capacity is both costly and takes a long time, thereby affecting overall supply availability.”
Accordingly, they stressed that any actions undermining energy supply security, whether through attacks on infrastructure or disruption of international maritime routes, increase market volatility and weaken the collective efforts under the DoC to support market stability for the benefit of producers, consumers, and the global economy. In this regard, the eight countries commended the DoC countries that took the initiative to ensure the continued availability of supplies, particularly through the use of alternative export routes, which have contributed to reducing market volatility, OPEC said in the statement.
The eight countries will meet on May 3.
