Report: OPEC's crude oil output increased by 1.16 million barrels per day in July, but remains below pre-war levels

Three Gulf countries are leading the increase in oil production, putting downward pressure on oil prices; however, traffic disruptions in the Strait of Hormuz and threats to Red Sea shipping lanes mean the path to a full supply recovery remains rocky.

According to Bloomberg, OPEC’s crude oil daily production in July rose by 1.16 million barrels compared to the previous month, reaching an average of 19.44 million barrels, with Kuwait, Saudi Arabia, and Iraq accounting for nearly all of the growth. Nevertheless, due to the ongoing Iran war disrupting shipping in the Gulf, the group’s overall output remains far below pre-war levels.

This partial supply rebound stems from restored production capacity after a short-term ceasefire agreement reached between the United States and Iran in mid-June, helping to cool oil prices and ease global economic risks.

On Tuesday, London Brent crude oil futures fell below 80 dollars per barrel, following remarks by US Treasury Secretary Bessenet that both sides might be close to reaching an agreement.

Iraq saw the largest output increase in July, with daily production rising by 460,000 barrels to reach 2.3 million barrels. Bloomberg’s oil tanker tracking data shows that Iraqi oil shipments by sea jumped by 37% compared to the previous month, driven by increased loading volumes at the southern Basra port.

Kuwait’s previous production had been reduced to a small fraction of normal due to conflict, but in July daily production rose by 360,000 barrels to an average of 1.57 million barrels. Kuwaiti officials said this week that output has now recovered to the highest monthly average since the outbreak of conflict.

Saudi Arabia’s situation is more nuanced. Surveys indicate that Saudi daily production in July increased by 390,000 barrels to 7.4 million barrels, but there is still a gap of several million barrels compared to pre-war levels.

Meanwhile, Iran’s ally, the Houthi movement in Yemen, continues to threaten tankers in the Red Sea—a key alternative export channel for Saudi Arabia after blockages in the Gulf—further constraining the actual recovery in Saudi supplies.

Visible oil tanker traffic through the Strait of Hormuz has diminished to a trickle, but some exporters are still covertly transferring crude oil.

Reportedly, this involves switching off automatic identification system (AIS) transponders on oil tankers to avoid tracking, then transferring cargo to other vessels in safer waters before sending it to the international market. This mode of operation has greatly reduced the accuracy of OPEC’s overall production tracking.

In addition, the July output increase may partly reflect surging domestic electricity demand during the Middle Eastern summer. Oil-producing countries in the region usually raise output in summer to meet peak electricity demand caused by air conditioning—often requiring the direct burning of crude oil for power generation.

Last weekend, the main members of the alliance comprising OPEC and its partners agreed to a further small increase in production quotas, marking a full reversal of the production cuts announced in 2023. However, with significant production capacity in the Middle East still offline, this adjustment largely remains theoretical until the end of hostilities.