Oil prices have fallen back to pre-war levels as Brent crude was trading below $72 per barrel and WTI around $68 per barrel on Sunday night, marking the first time since the Iran war began in late February. This represents a striking reversal from the peaks near $126 per barrel reached in April at the height of the crisis. The slide has been driven by optimism over peace, as Iran agreed under an interim memorandum of understanding to allow ships to pass unimpeded through the Strait of Hormuz while Washington lifted its blockade of Iranian ports. Commercial traffic through the strait, which carried around a fifth of the world's oil before the war, has been recovering though it remains well short of pre-conflict levels. Tanker traffic through the Strait of Hormuz showed signs of picking up on Sunday, with ships using a U.S.-protected corridor, and at least eight Japan-linked tankers were moving through the strait as part of a convoy near the coast of Iran after earlier failed attempts to transit the waterway. According to the latest U.S. Energy Information Administration (EIA) forecast, global benchmark Brent crude oil prices will average around $74 a barrel in the spot market during the third quarter of this year, down from an average of $85 in June. The EIA had previously forecast Brent prices would average over $101 a barrel in the third quarter, representing a significant downward revision.
The UAE is wasting little time capitalizing on its exit from OPEC, with crude production already climbing above 3.8 million barrels per day in June, its highest level in more than six years, as Abu Dhabi rapidly converts spare capacity into exports despite weaker oil prices. Production has accelerated since the UAE formally withdrew from OPEC and OPEC+ on May 1, ending years of output restrictions that had limited its ability to fully utilize its production capacity. Energy Minister Suhail Al Mazrouei said the UAE's investments in upstream capacity meant the country needed to maximize returns rather than keep production offline, as reported by Reuters. ADNOC has spent tens of billions of dollars expanding production capacity to 5 million barrels per day, giving the UAE one of the world's largest sources of immediately available spare production. The production increase comes as oil prices have retreated sharply from their Middle East war highs, with Brent crude falling to under $72 a barrel after briefly climbing above $126 during the conflict. The UAE's advantage is further enhanced by the 1.5 mbpd Habshan–Fujairah pipeline that enabled exports to bypass the Strait of Hormuz throughout the crisis, providing a critical logistical advantage while the broader OPEC+ alliance faces supply chain challenges.
Seven countries in the OPEC+ alliance agreed to lift their combined oil output by a modest 188,000 barrels per day in August, marking the fifth consecutive month that members have agreed to open the oil taps a little wider. The decision involves Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria and Oman, with Saudi Arabia and Russia carrying the largest share, adding 62,000 barrels per day each. The move follows similar increases for June and July and brings the total increase from April to nearly 800,000 barrels per day. However, these increases have remained largely on paper because of the Iran war, which closed the Strait of Hormuz to tanker traffic for key OPEC producers, including Saudi Arabia, Kuwait and Iraq, capping their output. The months-long blockade of the Strait of Hormuz in the war has shut in millions of barrels of daily oil production from across West Asia, forcing refiners from Europe to Asia to reduce fuel output. The gradual reopening is now releasing that backlog onto the market, amplifying the downward pressure on prices well beyond the modest official increments. As per the OPEC+ statement, the countries will continue to monitor and assess market conditions, and reaffirmed the importance of adopting a cautious approach. The post-crisis response highlights a significant strategic shift, as OPEC+ production fell sharply to 33.13 mbpd in May from 42.77 mbpd in February as export bottlenecks and storage constraints limited shipments, making current output increases a normalization of supply rather than expansion.
Middle East exports have improved since the U.S. and Iran agreed to a 60-day ceasefire on June 17, but volumes remain well below pre-war levels. Kpler data showed June exports at 9.62 million barrels per day, roughly half of the 18.4 million barrels per day average seen in the three months before the Iran conflict. July shipments are tracking slightly higher at 9.99 million barrels per day, though that number could be revised upward as more cargoes are assessed. The UAE's production surge stands in contrast to much of the rest of the Gulf, as although OPEC output rebounded sharply in June as producers restored barrels shut in during the Strait of Hormuz crisis, regional production remains below pre-war levels. The UAE is now one of the few major producers able to continue increasing output even as oil prices weaken, putting it in a strong position to compete for market share in Asia. Global oil output and trade flows should rebound fully by the end of this year from the disruptions caused by the Iran war, the U.S. Energy Information Administration said on Tuesday. The EIA expects most of the oil output previously shut-in across the Middle East to return online by the first quarter of 2027, which will lift global supply and reduce withdrawals from stockpiles, helping keep prices under control in the months ahead.
China remains another important factor in the oil market dynamics. During the Iran war, China cut back sharply on crude purchases, helping ease pressure on global supply. Kpler data showed China's seaborne imports dropped to 5.84 million barrels per day in June, about half of pre-war levels and the lowest in more than a decade. July imports are currently tracking even lower at 5.31 million barrels per day, although that figure may be revised higher. If prices remain weak, Chinese refiners may return to the market, but the timing will depend on whether crude prices fall far enough to make purchases attractive. Asian demand is bifurcating, with crude imports into China and Japan falling by around 40% during the crisis, and China's recovery is capped by electrification as EVs took 42% of Chinese car sales in May. Meanwhile, lower crude oil prices will contribute to a drop in U.S. retail gasoline prices, the EIA said. The agency now expects U.S. motor fuel prices will average about $3.80 a gallon in the third quarter, down from $4.21 a gallon in the second quarter. Knock-on effects of the Iran war had pushed U.S. motor fuel prices to multi-year highs, posing a major political worry for President Donald Trump and his Republican Party ahead of November's midterms.
Saudi Arabia has set the official selling price for its flagship Arab Light crude to Asia in August at $1.50 a barrel below the Oman/Dubai average, marking the biggest monthly cut in the price since Reuters records began in 2003. This represents a reduction of $1.10 from the previous month, but the August cut is even more dramatic at $11 per barrel below July levels, representing the sharpest monthly cut in more than two decades and the lowest premium since mid-2020. According to a Saudi Aramco pricing statement, the pricing adjustment reflects current market conditions and Saudi Arabia's response to evolving supply dynamics in the region. The move signals an aggressive effort to defend Asian market share against discounted Iranian crude and Russian ESPO exports, as Gulf producers recognize that refiners are increasingly price-sensitive. Abu Dhabi National Oil Company has also been selling crude through tenders at discounted prices, traders told Reuters. It is increasingly looking like the Gulf producers are gearing up for a price war, said Robert Yawger, director of energy futures at Mizuho. The latest CFTC data shows money managers reduced their net-long exposure in WTI crude futures and options by 6,582 contracts to 93,713 contracts in the week ending June 30, reflecting waning conviction in a sustained bullish oil narrative amid improving supply conditions.
