Iraq crude output returns to pre-war levels, Gulf supply at 70%

Iraq's crude output is returning to pre-war levels, Oil Minister Basim Muhammad Khudair said Thursday, as Gulf producers rebuild supply after the US-Iran conflict choked the Strait of Hormuz.

"Production is gradually recovering to levels before the conflict," Khudair said in a statement carried by state media. He did not provide a specific barrel figure.

The recovery comes as Goldman Sachs Group Inc. estimated that flows through the Strait of Hormuz may reach only about 70% of their pre-war level of 20 million barrels a day, analysts including Yulia Zhestkova Grigsby wrote in a June 17 note. Visible flows through the strait are currently estimated at about 1.3 million barrels a day, with an additional 1.6 million from the Gulf of Oman that could be linked to dark crossings, the bank said. At the same time, a total of 7.5 million barrels a day were going through the Red Sea port of Yanbu, as well as Fujairah and Ceyhan, as regional producers leaned on alternative routes.

The pickup in Gulf shipments may be completed by the end of next month, with regional production likely to recover by October, Goldman said. Brent crude traded below $78 a barrel Thursday, down from a war-driven peak above $126 in late April, as the market prices in the easing of supply constraints.

During the hostilities, regional producers including Saudi Arabia, the United Arab Emirates and Iraq made increased use of infrastructure that avoided the Hormuz chokepoint. Saudi Aramco boosted usage of a cross-country pipeline routing crude to its Red Sea coast, the UAE tapped a pipeline to the port of Fujairah outside the strait, and Iraq sent oil to the Turkish port of Ceyhan.

The availability of ships is unlikely to constrain the recovery, with about 860 million barrels of empty tanker capacity positioned in the strait or within five days of navigation, Goldman said. However, some shipowners may still be averse to sending vessels through the waterway, the analysts added.

The UAE is working on an ambitious plan to end its dependence on the chokepoint entirely, expanding its eastern ports of Dibba, Fujairah and Khor Fakkan — which sit outside the strait on the Gulf of Oman coast — and building at least one new harbor on the same coastline. "We're moving toward having zero Hormuz dependency and that's regardless of whether it's open or not," UAE Minister of Foreign Trade Thani Al Zeyoudi said in an interview. Kuwait, meanwhile, is seeking pipeline alternatives, with state producer Kuwait Petroleum Corp. in talks with Saudi Arabia and the UAE about expanding their pipeline systems to handle Kuwaiti barrels, Chief Executive Officer Sheikh Nawaf Al-Sabah told a conference.

The return of Iraqi supply to pre-war levels adds to downward pressure on crude prices, which have already retreated more than 38% from their April peak. The US and Iran inked an interim deal to end their war and reopen Hormuz, though the timeline for a full resumption of traffic through the waterway remains uncertain.

This article is for informational purposes only and does not constitute investment advice.