Key Takeaways:
OPEC's crude production recouped more wartime losses in July, yet the recovery remains constrained by shipping disruptions through the Strait of Hormuz and Red Sea.
OPEC crude production rose 1.16 million barrels a day in July to an average of 19.44 million barrels a day, with Iraq, Kuwait and Saudi Arabia accounting for nearly all of the gains, a Bloomberg survey showed. The increase follows a short-lived ceasefire between the U.S. and Iran reached in mid-June, but output remains considerably below prewar levels as the conflict continues to disrupt Persian Gulf shipping.
"Investors remain reluctant to fully price out the risk of renewed escalation, leaving the market front and centre influenced by geopolitical headlines," said Ahmad Assiri, a research strategist at Australia-based broker Pepperstone. The prospect of oil at $100 levels could not be ruled out "despite a broader outlook that currently favours lower prices," he added.
Iraq led OPEC's increases, boosting production by 460,000 barrels a day to 2.3 million barrels a day, with exports jumping 37 percent on increased loadings from the southern port of Basrah. Kuwait, whose output had been crushed to a fraction of normal levels by the conflict, added 360,000 barrels a day to reach 1.57 million barrels a day — the highest monthly average since the war began. Saudi Arabia's production rose 390,000 barrels a day to 7.4 million barrels a day, though the kingdom's exports remain under pressure as Houthi rebels threaten tankers on the Red Sea route.
The partial supply recovery has helped cool oil prices, with Brent crude falling below $80 a barrel on Aug. 4 — down about 5 percent — after Treasury Secretary Scott Bessent said Washington and Tehran may be close to an agreement. WTI retreated 5.43 percent to $75.98. OPEC+ agreed over the weekend to raise quotas for a sixth consecutive month in September, completing the reversal of 2023 output cuts, though the increase remains largely theoretical while Middle East capacity stays shuttered.
While visible tanker traffic through the Strait of Hormuz has been reduced to a trickle, exporters have had some success in discreetly shuttling barrels out. The process involves tankers with transponders switched off to avoid detection, then transferring cargoes to other vessels in safer areas for transport to international markets. This opaque shipping data has complicated efforts to track the group's output accurately.
The July gains could also be partly explained by higher domestic consumption. Middle East producers typically bolster output during summer months when surging electricity demand for air conditioning requires them to directly burn crude oil.
Last weekend, major members of the OPEC+ alliance agreed another modest increase in quotas, completing the reversal of cutbacks announced in 2023. Still, with so much Middle East output shuttered, the increase remains largely theoretical until the war ends.
The last time OPEC faced comparable supply disruption was during the 2019 attacks on Saudi Aramco's Abqaiq processing facility, which temporarily knocked out 5.7 million barrels a day of production — roughly half the kingdom's output at the time. Prices spiked more than 14 percent in a single session before normalizing within weeks as Saudi Arabia restored capacity faster than expected.
Bloomberg's production survey is based on ship-tracking data, information from officials and estimates from consultants Rapidan Energy Group, FGE NexantECA, Kpler Ltd. and Rystad Energy AS.
For energy-dependent economies, the combination of rising OPEC supply and potential U.S.-Iran diplomatic progress points to lower fuel costs and easing inflation pressures in the near term. But the fragility of the recovery — with Hormuz traffic still disrupted and Houthi attacks threatening Red Sea routes — means any breakdown in negotiations could quickly reverse the price decline, with Brent potentially retesting $100.
This article is for informational purposes only and does not constitute investment advice.
