The decision by the Organization of the Petroleum Exporting Countries and Allies to continue increasing production by 188,000 barrels per day for June will have next to no market impact, analysts at Rystad Energy said in a research note on Sunday.
Given the fact that the Strait of Hormuz remains closed with no end in sight to the Iran war, even with a questionable ceasefire still apparently intact, Rystad says the changing of on-paper quotas is of little relevance when it's unclear whether additional barrels can reach the market.
Rystad said that the June decision confirms that the group is "on track to unwind the first tranche of voluntary cuts by September, if not earlier".
The Middle East is also not the only obstruction in the market, Rystad notes, with Russia "under growing pressure."
The latter's quota would now climb to 9.82 mmbbl/d but the country produced less in May, at 9.2 mmbbl/d as Ukrainian drone attacks intensified.
"This output gap of around 600,000 bpd below its new quote reflects both the toll of infrastructure attacks and a structural erosion of production capacity that predates the current conflict," the note said.
The OPEC+ increase will highlight a gap between the group's targets and what Russia can actually now produce.
Rystad said that with the Strait of Hormuz closed and some producers operating "far below normal levels", it will be difficult to know what each country can sustainably produce in 2027, when the group thinks ahead to future quotas.
"Looking into 2027, OPEC+ could, in theory, move from unwinding voluntary cuts to unwinding the official cuts agreed in October 2022, which account for around 2 million barrels per day," the note said, adding that market dynamics could impede this.
The note cautions that the global oil market could quickly swing from deficits to a "very large surplus" of as much as 5 mmbbl/d in the months after the Hormuz Strait reopens.
This would be due to a combination of rising OPEC+ supply, rising US shale production and also weaker demand after a prolonged period of higher oil prices.
The UAE has also expressed its intention to increase production, having withdrawn from OPEC+ to achieve precisely that.
Any surplus may not be immediately manifest upon the reopening of Hormuz with the refilling of depleted strategic petroleum reserves and commercial stocks to absorb it initially.
Once that restocking demand tapers off, OPEC+ could be forced back into cutting output rather than raising quotas.
That moment could put create strains among OPEC+ members in terms of setting new quotas, with conflicting needs to reconcile.
"OPEC+ cohesion is easy to maintain when the market does the discipline for you," the note concluded.
"The real test is whether that holds when the barrels come back, stocks rebuild and members have to decide who cuts."