OPEC June production surged by 2.34 million barrels per day, oil market returns to 'oversupply' trading.

OPEC's crude oil production rebounded sharply last month, largely due to Persian Gulf member states resuming exports through the Strait of Hormuz after a peace agreement was reached between the U.S. and Iran.

According to Bloomberg, OPEC's June output increased by 2.34 million barrels per day to 18.75 million barrels per day, with the increase mainly coming from Kuwait, Saudi Arabia, and Iran. However, production remains significantly below pre-war levels.

With weak oil consumption and rising supply, some markets are already experiencing a supply glut. Brent crude futures traded around $72 per barrel on Friday, erasing war-time gains.

In the broader OPEC+ alliance, which includes Russia, key members will hold a monthly video conference on Sunday to discuss output limits for the coming month. The market expects them to continue pushing for a modest production increase.

Production remains significantly below pre-war levels

Despite the considerable monthly increase, OPEC's overall production still lags far behind pre-war levels. After adjusting for the UAE's withdrawal, the group's June output is still 7.3 million barrels per day lower than February levels, a drop of 28%.

The Strait of Hormuz was largely closed during the early stages of the conflict, and Persian Gulf oil producers had already gradually found alternative shipping routes.

After the U.S.-Iran agreement was finalized, public transit routes were fully restored, and tanker tracking data shows that Saudi oil shipments have recovered to 90% of normal levels.

Kuwait leads, Iran's crude piles up at sea

By country, Kuwait saw the largest increase among OPEC's 11 members in June, with output jumping 870k barrels per day to 1.36 million barrels per day. The country's production had previously been cut by about 80% due to the conflict and remains significantly below normal levels.

Saudi Arabia ranked second with an increase of 550k barrels per day, bringing daily output in June to 7.2 million barrels. Iran's output rose by 510k barrels per day, with daily production reaching 2.85 million barrels. Notably, Iran is currently facing difficulties in finding buyers, with large amounts of crude oil accumulating on floating storage tankers at sea, awaiting sale.

Beyond production patterns, political divisions within OPEC cannot be ignored. The UAE officially withdrew from OPEC in May, giving it the freedom to increase production once the Strait situation is fully stabilized. Iraq has also threatened to leave if it does not ultimately receive a higher production quota allocation from the organization.

OPEC+ expected to continue modest production increases in August

Key OPEC+ member states, including Russia, will hold a monthly video conference on Sunday to discuss production policy for the coming month.

During the war, this group of seven major oil-producing countries had announced several rounds of small, symbolic production increases, continuing a process started several years ago that theoretically aims to restore previously reduced production levels.

Two delegates indicated this week that they expect an additional quota increase of 188k barrels per day to be announced for August, which would be the penultimate phase of this recovery plan.

For other members of the alliance, Russian crude oil exports have risen to a record high after Ukrainian attacks on its domestic refineries, as crude that could not be processed domestically was instead exported, further adding to global supply pressure.

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