Oil Prices Dip as OPEC+ Agrees to Further Production Hikes

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Oil prices edged lower early on Monday after OPEC+ agreed to raise production targets again from August, while improving exports from the Gulf and higher Russian shipments fuelled expectations of increased global crude supplies. While Brent crude slipped 0.58% to $71.70 a barrel, WTI crude was down 0.36% at $68.44 a barrel around 7:30 am IST.

The latest decline came after Sunday's OPEC+ meeting, where the oil-producing alliance agreed to lift output targets by a combined 188,000 barrels per day from August. It is the fifth straight month that the group has opted to increase production. The latest increase follows similar output hikes announced for June and July. Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria and Oman are participating in the latest production increase.

In its statement, OPEC+ said, “The countries will continue to monitor and assess market conditions, and in their continuous efforts to support market stability, they reaffirmed the importance of adopting a cautious approach.”

While production targets have continued to rise, actual supply has not increased to the same extent. The US-Israeli war with Iran had disrupted tanker movements through the Strait of Hormuz, affecting key OPEC producers such as Saudi Arabia, Kuwait and Iraq and limiting their ability to raise output.

"The number was largely in line with expectation," IG market analyst Tony Sycamore said. "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."

The United Arab Emirates exited OPEC on May 1. Meanwhile, market participants have also been watching developments around the Strait of Hormuz, a crucial route for global oil shipments. Following an interim understanding between the United States and Iran, commercial vessels have increasingly resumed using the waterway after Iran agreed to allow ships to pass and the US lifted its blockade of Iranian ports. However, shipping volumes remain below pre-war levels and tensions over the strait continue.

The gradual return of Gulf exports has also weighed on prices. A Reuters survey found OPEC's crude production climbed by 3.3 million barrels per day in June from the previous month to 19.43 million barrels per day, rebounding from its lowest level in more than two decades. Exports from Gulf producers rose by more than 3 million barrels in June compared with May, taking shipments above 10 million barrels per day. Despite the recovery, export volumes remained around 40 per cent lower than before the conflict.

Additional supply is also coming from Russia. Industry sources said crude shipments from Russia's western ports reached a record high in June and are expected to remain at that level in July after drone attacks by Ukraine damaged several refineries, prompting Moscow to increase crude exports.

Both Brent and WTI were largely unchanged over the previous week after falling for much of the past few weeks, with traders balancing the prospect of additional OPEC+ supply against the recovery in Gulf exports and ongoing negotiations between the US and Iran over the future of shipping through the Strait of Hormuz.