Iraq's 2.24 Million Bpd Output Gap Dwarfs OPEC+ August Hike as WTI Settles at $68.78

WTI crude settled at $68.78 per barrel on Thursday's CME close, gaining $0.09 on the session, while ICE Brent settled at $72.12 per barrel, up $0.32. Both exchanges observe the July 4 national holiday, making the Thursday close the effective price anchor for the start of the July 7 trading week. Western Canadian Select settled at $56.34 per barrel, placing the WCS-WTI differential at $12.44 per barrel. Flat settlement prices mask supply fundamentals that remain far more constrained than the calm surface suggests.

Iraq, OPEC's second-largest producer, generated only 1.76 million barrels daily in May 2026, according to production monitoring estimates cited by OilPrice.com. Pre-war output exceeded 4 million barrels per day. That leaves a supply deficit of approximately 2.24 million barrels per day. OPEC+ approved an August quota increase of 188,000 barrels per day, continuing a sequence of monthly production hikes since hostilities began. That hike covers approximately 8.4% of Iraq's production shortfall alone, before accounting for reduced output in Iran or other conflict-affected producers.

Hormuz Crossings Still Well Below Peak

Tanker crossings through the Strait of Hormuz reached approximately 11 on Tuesday, down sharply from a peak of 24 crossings the preceding Wednesday, according to ING estimates cited in market reports. The vessels currently transiting are largely those delayed during the conflict period, not fresh cargo departing newly loaded berths. ING analysts cautioned that "tanker vessel movements in the Strait of Hormuz still appear limited," pointing to sustained constraint despite the ceasefire. Qatar resumed liquefied natural gas transits this week; the carrier Khuwair became only the sixth LNG cargo bound for China to exit the Strait since hostilities began.

Kuwait and the UAE both accelerated output as the ceasefire took hold. Production in Kuwait reached 1.65 million barrels daily, roughly triple its May lows. UAE exports reached 3.9 million barrels daily in June, approaching record levels, according to Kpler analyst Johannes Rauball. Rauball cautioned that UAE export volumes may ease as the built-up storage inventory that enabled the initial surge gradually depletes.

Analysts Disagree on Surplus Timeline

Morgan Stanley analysts indicated the market is returning to surplus conditions as Gulf production recovers. Goldman Sachs, while noting surplus risks, flagged that spot barrels currently trade at a discount relative to forward delivery, suggesting the surplus has not yet arrived in near-term markets at the pace the bank anticipated. ING remains cautious, pointing to Hormuz traffic as evidence that supply recovery lags prevailing sentiment. Kpler data on UAE and Kuwait output suggests at least a portion of the rebound may be temporary, reflecting storage drawdowns rather than sustained production ramp-ups.

Oil Authority coverage of the fourth consecutive weekly Brent loss documented Citigroup and Morgan Stanley divided by $15 per barrel in their Brent price targets as Hormuz flows first began resuming. The current $72.12 Brent settlement sits between those two targets, reflecting a market that has absorbed the initial ceasefire relief without fully pricing in a complete supply recovery. That unresolved tension between the $60 and $75 scenarios continues to cap upside and limit further downside in the near term.

EIA Crude Draw and US Production Context

The Energy Information Administration reported that commercial crude stocks fell 3.8 million barrels for the week ending June 26, reaching 408.4 million barrels. Gasoline inventories rose 2.3 million barrels and distillate stocks added 2.5 million barrels over the same period. The concurrent crude draw alongside product builds indicates refiners converted available feedstock into saleable finished product at elevated run rates ahead of the peak summer demand season. US crude production reached 13.9 million barrels per day in May, a record according to the EIA, providing a domestic supply base that partly counterbalances Iraq's ongoing deficit in global balances.