Increasing the quota again: OPEC wants to remain profitable in the war

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For now, these are only production quotas “on paper” because OPEC companies are struggling to reach even the current quotas. According to a Reuters check, OPEC members managed to produce only about 20 million barrels per day, 6 million less than the stated quotas. This, of course, is due to the blockade of the Strait of Hormuz. Although Saudi Arabia has the east-west pipeline that allows oil to reach the Red Sea, it is far from sufficient to reach the quotas allowed to it. Even worse, the southern exit from the Red Sea, at the Bab al-Mandab strait, is blocked by the Houthis in Yemen, who have recently been fighting against the Saudis. This leaves only the northern exit through the Suez Canal and the Su-Med pipeline which is limited in its capacity.

Why did oil prices fall?

Russia, an “OPEC+” company that is under sanctions, is also having difficulty reaching the quotas allowed by the cartel. The United Arab Emirates, which withdrew as mentioned last May, tries to export as much as possible through the port of Fujairah, which is outside the strait, but this route is also limited.

It is difficult to attribute the drop in oil prices, down to the level of 83 dollars per Brent barrel, to the OPEC announcement. Apparently this has more to do with the stopping of American attacks in Iran, due to reaching a framework of agreements with Iran. Although a real agreement seems far away, only the possibility that the Strait of Hormuz will open soon encourages the market. On the other hand, in such a case the OPEC quotas will become relevant again, and the one who is expected to benefit is the United Arab Emirates, which is no longer obligated to them.

US export record

The barrels of oil that reach the market today come less from the Persian Gulf, and more from Texas: the US Department of Energy recorded an all-time record for oil exports in May: 5.73 million barrels per day on average. In doing so, the US broke the record it set only in April. In this way, it becomes clear that there is a change from the situation 10 years ago, when the USA was a net importer of oil.

At the same time, China is recording a decade low in oil imports according to the US Department of Energy. The largest oil importer in the world, which “mobilized” to absorb the decrease in global oil supply, thereby preventing a much larger jump in oil prices. It does this by reducing domestic consumption, including shutting down refineries inside China that export fuel.