OPEC+ said on June 30 it would stick to its planned oil output hikes in August but avoided discussing policy from September onwards even as prices have risen on tight global supplies and worries that the group has little ability to pump more crude.

The June 30 meeting of the group that includes Saudi Arabia, Russia and other major oil producers was held days before U.S. President Joe Biden travels to the Middle East, including Riyadh where he is expected to press the kingdom for more oil.

At its last gathering on June 2, OPEC+ decided to increase output each month by 648,000 bbl/d in July and August, up from a previous plan to add 432,000 bbl/d per month.

Washington welcomed the June 2 decision for a faster production rise, following months of Western calls for more oil from OPEC+, which includes OPEC.

Oil prices rocketed to their highest levels since 2008, climbing above $139/bbl in March, after the United States and Europe imposed sanctions on Russia over its invasion of Ukraine, which Moscow calls a “special military operation.”

Prices have slipped since then but were still above $115 on June 30 because of tight supplies and concerns that OPEC states had little extra capacity to raise output swiftly. Analysts said those fears outweighed worries about an economic downturn.

“Supply scarcity fears outweigh recessionary fears. Globally, we are running on extremely thin spare capacity,” said Ehsan Khoman from MUFG bank.

“OPEC+ is mulling firing its last crude production bullets as it runs out of capacity to pump more, whilst refining capacity for oil products ... which drives the real economy, has declined markedly,” he said.

French President Emmanuel Macron said this week he had been told Saudi Arabia and the United Arab Emirates, the only two OPEC states considered to have significant spare capacity, could barely raise output.

On top of worries about oil supply, Europe is struggling to manage a gas shortage because of lower Russian deliveries.

“The likelihood of gas rationing in Europe has increased significantly. A technical recession in the eurozone is now an increasing possibility,” Fitch Ratings said.

Comments