The global crude oil market is undergoing an unprecedented structural upheaval in its supply and demand dynamics. On Sunday (May 3), the Organization of the Petroleum Exporting Countries (OPEC+) and its allies officially announced after an online meeting that the seven core member countries would further increase their crude oil production targets by 188,000 barrels per day in June. This marks the third consecutive month of increased production quotas since the Strait of Hormuz was blocked. However, given the continued obstruction of the Strait of Hormuz, the production increase plan, while nominally an adjustment, is unlikely to result in a substantial increase in actual supply, significantly diminishing the practical significance of this adjustment.

Increased production quotas face numerous practical difficulties in implementation.

The seven countries involved in this production increase include Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman. The May production increase, after excluding the UAE's withdrawal, is slightly lower than the 206,000 barrels per day increase in May. According to the latest quota arrangement, Saudi Arabia's June production quota will rise to 10.291 million barrels per day; however, the country's actual production in March was only 7.76 million barrels per day, highlighting the significant gap between quota and actual capacity.

Rystad Energy analyst Jorge Leon points out that OPEC+ is sending two signals to the market: first, despite the UAE's formal withdrawal from the OPEC+ framework on May 1, the organization maintains operational continuity; second, given the difficulty in securing actual supply, it continues to demonstrate to the market that its dominance over the oil market remains solid. He notes, "The increased production is more of a signal than a real increase in physical barrels."

With the Hormuz blockade in place, increasing production is like trying to catch the moon's reflection in water.

The production increase plan remains merely nominal, primarily due to the de facto blockade of the Strait of Hormuz. Since the outbreak of the Iran-Iraq War on February 28, this crucial global oil chokepoint has been effectively closed, severely restricting the crude oil export capacity of core OPEC+ members Saudi Arabia, Iraq, Kuwait, and the UAE, which has since withdrawn. It is understood that under normal circumstances, the strait accounts for approximately 20% of global oil and gas exports.

Even if shipping across the Strait resumes, industry insiders say that full normalization of oil flows in the Persian Gulf is expected to take several weeks to months. As long as the blockade continues, the quota increase will have a very limited impact on the actual increase in physical supply.

Meanwhile, the prospects for US-Iran negotiations remain uncertain. Iran's new 14-point negotiating proposal no longer demands that the US lift the Strait of Hormuz blockade before negotiations, signaling a tactical de-escalation. However, US President Trump announced the launch of "Operation Freedom of Navigation," a ship guidance program aimed at assisting stranded merchant ships in evacuating the waters around the Strait of Hormuz, on the same day. At the same time, Israel initiated ministerial-level censorship and intensified its military preparations, adding further uncertainty to the situation.

The supply gap continues to widen, putting the global oil market on edge.

The consequences of stalled production increases have been fully confirmed by the data. The latest OPEC report shows that in March, the average daily crude oil production of all OPEC+ member countries was 35.06 million barrels, a sharp drop of 7.7 million barrels compared to February, with Iraq and Saudi Arabia showing the most significant production cuts due to export obstacles. Supply reductions have pushed Brent crude oil prices to a four-year high, briefly exceeding $125 per barrel. As of early Asian trading on May 4, Brent crude futures had fallen to the $108-$110 per barrel range, while WTI briefly fell below the $100 mark, but logistics spreads and spot premiums remained high.

More severe structural risks are brewing. Data from the International Energy Agency shows that global oil supply plummeted by more than 10 million barrels per day in March, setting a new record for the largest supply disruption in history. Meanwhile, OPEC+ spare capacity has fallen to a record low of 320,000 barrels per day, indicating that global supply elasticity has been exhausted. Although many countries have used their strategic petroleum reserves to buffer the impact, the release effect is expected to diminish significantly from May onwards. Analysts warn that a widespread shortage of jet fuel may occur in the next one to two months, triggering a new wave of global inflation.

The repercussions of the UAE's withdrawal from OPEC+ continue, and the cohesion of OPEC+ faces a test.

On May 1st, the UAE officially withdrew from the OPEC+ framework, ending its nearly 60-year membership and exacerbating uncertainty in the Middle East's energy landscape. OPEC+ deliberately avoided mentioning the UAE's withdrawal in its recent production increase statement, attempting to maintain a facade of unity through silence. Analysts point out that with the removal of quota constraints, once navigation resumes in the Strait of Hormuz, the UAE's medium- to long-term production growth momentum will be extremely strong, potentially putting pressure on the global supply structure. The G7 will meet again on June 7th, where the developments in the Hormuz and the evolution of supply and demand will be key variables in the assessment.

Editor's Summary:

The contradiction between OPEC+ nominal production increases and actual supply constraints has reached a critical point. On the supply side, the Hormuz blockade has crippled exports from core member countries, while on the demand side, strategic reserves are nearing depletion, and global spare capacity is almost entirely exhausted. The biggest risk to the market right now lies not in the magnitude of the production increase, but in the lack of available backup capacity to offset any additional disruptions. Under current conditions, market tension is determined more by the progress of geopolitical negotiations than by statements of increased production. The specific timetable for the lifting of the Hormuz blockade and the pace of capacity release after the UAE's withdrawal from OPEC will be key variables influencing global energy price trends.

Frequently Asked Questions

Question 1: Why is it that OPEC+'s decision to increase production by 188,000 barrels per day is difficult to implement effectively?

Since the outbreak of the Iran-Iraq War in late February, the Strait of Hormuz—a vital waterway for approximately 20% of global oil trade—has been effectively closed by blockades from both the US and Iran. The main export routes of OPEC+ core members Saudi Arabia, Iraq, Kuwait, and the UAE (which has since withdrawn) from the Persian Gulf have been blocked. Even with increased production quotas on paper, crude oil from Gulf oil-producing countries cannot safely cross the blockade. Therefore, until transportation conditions fundamentally improve, this production increase remains largely nominal, with negligible positive impact on actual supply.

Question 2: What are the potential impacts of the UAE's withdrawal from the OPEC+ framework?

The UAE is OPEC's third-largest oil producer, with an actual crude oil production capacity of approximately 4.8 million barrels per day. However, this capacity has long been constrained by quotas, limiting it to around 3.4 million barrels per day. Withdrawal from OPEC will automatically remove these quota restrictions. Once the Strait of Hormuz reopens, the UAE will no longer be bound by collective production decisions and can independently release additional supply based on market demand and price trends. In the medium to long term, this potential for increased production will exert sustained pressure on the OPEC+ spare capacity structure and even the international oil price system. It may also prompt other oil-producing countries with expansion potential but persistent dissatisfaction with production restrictions to reconsider their alliance status.

Question 3: What is the current level of tension in the global oil supply?

Data from the International Energy Agency shows that global oil supply plummeted by more than 10 million barrels per day in March alone, marking the largest single-month supply disruption in history. OPEC+ production was actually short of its quota by approximately 9 million barrels per day. In addition to the Persian Gulf exports being cut off by the Strait of Hormuz, Russian oil fields and export terminals continued to be targeted by Ukrainian drone strikes. More critically, OPEC+ spare capacity has fallen to a historic low of only about 320,000 barrels per day, leaving the world with no capacity to cope with any further supply cuts, and the market's defensive depth has been completely exhausted.

Question 4: If the Strait of Hormuz is reopened, why can't global energy supply immediately return to normal?

Even if the US and Iran reach an agreement to lift the blockade of the Strait of Hormuz, it will still take a considerable amount of time for Persian Gulf oil fields and export terminals to return to pre-war operating levels. Analysts estimate that even after the blockade is lifted, it will take at least 8 to 10 weeks for Middle Eastern oil production to recover to 80% of its capacity, and the full normalization of Gulf crude oil exports could take several months. This means that even if geopolitical tensions ease, the global energy market will remain under pressure from tight supply and demand, or even shortages, for a considerable period, and oil prices will not return to low levels particularly quickly.

Question 5: What impact will the fading effect of the release of strategic petroleum reserves have on oil prices?

In the early stages of the conflict, the approximately 400 million barrels of strategic reserves released by the International Energy Agency, along with the 200-300 million barrels of floating reserves that had been stranded in the Strait of Hormuz before the conflict broke out, acted as a crucial buffer, helping to curb the runaway surge in oil prices. However, this replenishment was not contributed by new production capacity, but rather by the short-term over-utilization of existing resources. Analysts predict that the ability of the reserve release effect to cover the supply gap will weaken significantly from mid-May onwards. When the buffer completely dissipates and the geopolitical blockade remains unresolved, the crude oil market may face a second, more severe price shock.