Starting with the primary drivers
Output increases were led by three Persian Gulf nations, placing downward pressure on oil prices. However, ongoing disruptions at the Strait of Hormuz and threats to Red Sea shipping routes continue to hinder a full recovery in supply.
According to a survey, OPEC's crude output rose by 1.16 million barrels per day (bpd) in July to an average of 19.44 million bpd, with Kuwait, Saudi Arabia, and Iraq accounting for nearly all of the gain. Despite this, total production for the group remains well below pre-war levels due to the persistent disruption of Persian Gulf shipping by the Iran conflict.
This partial supply recovery stems from capacity restoration following a brief ceasefire agreement between the US and Iran in mid-June, helping to cool oil prices and mitigate risks to the global economy.
On Tuesday, London Brent crude futures fell below $80 per barrel, following comments from US Treasury Secretary Bessant that the two sides might be close to reaching a deal.
Iraq, Kuwait, and Saudi Arabia lead the increase
Iraq posted the largest output gain in July, with production rising by 460,000 bpd to 2.3 million bpd. Data from tanker tracking shows that Iraq's July crude shipments jumped 37% month-over-month, driven by higher loading volumes at the southern port of Basra.
Kuwait's output, previously compressed to a very small fraction of normal levels due to the conflict, increased by 360,000 bpd in July to an average of 1.57 million bpd. Kuwaiti officials stated this week that the country's production has recovered to its highest monthly average since the start of the conflict.
The situation in Saudi Arabia is more nuanced. The survey indicates Saudi Arabia's July output rose by 390,000 bpd to 7.4 million bpd, but it still lags pre-war levels by millions of barrels per day.
Meanwhile, Iran's ally, the Houthi group in Yemen, continues to threaten tankers on the Red Sea route鈥攁 key alternative export channel for Saudi Arabia after the Strait of Hormuz was blocked鈥攆urther constraining the scope for actual supply recovery.
Dark fleet operations complicate tracking
Visible tanker traffic through the Strait of Hormuz has dwindled to a trickle, but some exporters are still secretly transshipping crude.
It is understood that this involves disabling tanker AIS transponders to avoid tracking, then transferring cargo to other vessels in safer waters for onward shipment to international markets. This practice significantly undermines the accuracy of tracking OPEC's overall output.
Furthermore, the July production increase may be partly attributable to higher summer electricity demand in the Middle East. Oil producers in the region typically boost output during the summer to meet peak power demand from air conditioning, which often requires burning crude oil directly for electricity generation.
Over the weekend, key members of the OPEC+ alliance agreed to a further small increase in output quotas, completing a full reversal of the production cuts announced in 2023. However, with substantial Middle Eastern production capacity still offline, this quota adjustment remains largely theoretical until the conflict ends.