To add OPEC statement

By Alex Lawler, Ahmed Ghaddar and Olesya Astakhova

LONDON, July 5 (Reuters) - The OPEC+ alliance said in a statement on Sunday that it had agreed to a further increase in oil production targets starting in August.

The decision is expected to inject more supply into the global market at a time when oil prices are falling as oil exports gradually resume through the Strait of Hormuz.

During an online meeting, the alliance agreed to increase production quotas by 188,000 barrels per day starting in August, in addition to similar increases approved for June and July.

Seven key countries in the alliance increased their production quotas by approximately 800,000 barrels per day between April and July. The alliance includes the Organization of the Petroleum Exporting Countries (OPEC) and partners such as Russia.

But this increase remained largely ink on paper because of the US and Israeli war on Iran, which led to the closure of the Strait of Hormuz to tankers sailing from some of the most prominent members of the OPEC+ alliance, such as Saudi Arabia, Kuwait and Iraq.

Production recovery begins

According to OPEC data, the alliance's production fell to 33.13 million barrels per day in May, compared to 42.77 million barrels per day in February. Production began to recover in June thanks to US efforts to help the UAE and other OPEC+ countries export crude, but shipments remain below pre-war levels.

Despite continued supply disruptions, oil prices have returned to pre-war levels under pressure from factors including declining Chinese imports, increased exports from producers outside the Middle East, and the largest withdrawal from global strategic reserves coordinated with the International Energy Agency.

"The seven countries continued to cancel production cuts as expected," said UBS analyst Giovanni Staunovo.

He added, "The focus in the near term will be on the number of oil tankers that will be able to cross the Strait of Hormuz, and how quickly demand and China's crude imports recover."

The memorandum of understanding signed between Washington and Tehran with the aim of ending the war helped to reinforce traders' belief that supplies would eventually return to normal levels.

Iraq is pushing for increased production quotas.

Brent crude traded near $72 a barrel on Friday, down from a peak of over $120 a barrel in the recent past. It has returned to levels seen before the US and Israeli attack on Iran on February 28.

Besides agreeing on production targets, the OPEC+ alliance faces other challenges following the UAE's withdrawal from the group, while Iraq has indicated its desire to obtain higher production quotas.

The OPEC+ alliance includes 21 countries, including Iran, but in recent years production management has been limited to just seven key countries, along with the UAE before its withdrawal from OPEC and the alliance.

Seven producing countries – Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan and Oman – are working to increase their production as part of the gradual elimination of a 1.65 million barrel per day supply cut agreed upon in 2023 when the UAE was still a member of the alliance.

The UAE withdrew from OPEC and the alliance in late April, seeking to align its production capacity more closely with its actual production levels, away from the production restrictions imposed by the alliance.

According to Reuters calculations, the seven countries have about 379,000 barrels per day of the original tranche left to pump back into the market, taking into account the UAE's withdrawal from May 1st.

With the approval of the August increase, countries will have almost completely reversed the reductions announced for 2023 if they agree to an additional increase of roughly the same amount for September during the next meeting scheduled for August 2.