The two direct drivers behind oil prices falling back to pre-war levels are OPEC+'s continued production increases and the gradual recovery of traffic through the Strait of Hormuz.

On July 5, OPEC+ announced during an online meeting that seven core member countries had agreed to increase their production quotas by 188,000 barrels per day (bpd) starting in August. The seven participating countries are Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan, and Oman. This marks the fifth consecutive month that OPEC+ has increased production.

Since April, these seven core members have collectively raised their production quotas by nearly 800,000 bpd. Starting in August, after accounting for the impact of the United Arab Emirates' withdrawal effective May 1, the seven core members will have only 379,000 bpd remaining before fully unwinding the production cuts agreed under the 2023 agreement. The next meeting is scheduled for August 2, and if another production increase of a similar size is approved, the group will have completely reversed all production cuts initiated in 2023. The 1.65 million bpd voluntary production cut first announced in April 2023 had originally been extended through the end of 2026. That reduction is now being phased out month by month.

An even more important factor than OPEC+'s production increases is the recovery of shipping through the Strait of Hormuz. Following the outbreak of the U.S.-Iran conflict on February 28, the Strait of Hormuz—the world's most critical energy shipping corridor—was at one point nearly paralyzed. OPEC+'s production fell sharply from 42.77 million bpd in February to 33.13 million bpd in May. Although the core members raised production quotas by nearly 800,000 bpd between April and July, much of those additional barrels remained only on paper because transportation disruptions prevented exports.

Conditions began to improve in June. Supported by U.S. efforts to help the United Arab Emirates and other OPEC+ members increase oil exports, production started to recover. OPEC+'s oil production rose by 3.3 million bpd month-on-month in June, reaching 19.43 million bpd. Oil exports from the Gulf region surged by more than 3 million bpd month-on-month in June, climbing back above 10 million bpd.

Actual shipping data from the Strait of Hormuz also show improving conditions. During the 72-hour period from July 2 to July 4, a total of 70 merchant vessels escorted by the United States safely transited the strait. On July 3, dozens of vessels passed through, marking one of the busiest days in nearly a month. Saudi Arabia's exports have already surged to levels close to those seen before the conflict, with its oil tankers once again passing smoothly through the Strait of Hormuz. The United Arab Emirates, which had previously left OPEC during the conflict, has also resumed crude oil exports.

However, there is still a gap between "recovery" and "normalization." Before the conflict, more than 100 vessels passed through the strait each day. By comparison, 70 vessels over 72 hours equates to only about 23 vessels per day, still well below pre-conflict levels. Iran continues to deploy naval mines within the strait, and the International Maritime Organization (IMO) estimates that approximately 80 mines must be cleared before full navigation can safely resume. Shipowners currently have only two options: sail through routes designated by Iran (which require authorization from the Islamic Revolutionary Guard Corps) or use the southern shipping lane close to the Omani coast, where air cover is provided by the United States and Oman. Marine insurance premiums remain elevated. Analysts note that naval mines may still be present in the waterway, and shipping risk premiums remain significantly higher than before the conflict.

Wall Street is rapidly lowering its forecasts. Goldman Sachs has cut its year-end Brent crude price forecast to US$80 per barrel, but under a more optimistic supply normalization scenario, prices could fall to around US$60 per barrel by the end of 2026. Morgan Stanley has lowered its oil price forecast twice recently, reducing its third-quarter average Brent price projection from US$90 to US$75 per barrel. Citigroup is even more bearish, expecting Brent crude to fall to the US$60–65 per barrel range by year-end, and recommends investors sell into any summer rally. Spot market indicators are also supporting this view. The Brent and Dubai crude forward curves have shifted into a contango structure, where near-term contracts trade below longer-dated contracts, typically indicating that the market expects short-term supply to exceed demand.

In summary, the forces driving this latest decline are structural: fading geopolitical risk premiums, continued OPEC+ production increases, the gradual recovery of the Strait of Hormuz, rising exports from non-Middle Eastern oil producers, and the International Energy Agency's (IEA) coordinated release of record volumes of strategic petroleum reserves. Together, these factors have completely reversed market concerns over supply shortages. However, two key uncertainties remain: first, whether the Strait of Hormuz can return to normal shipping operations by the end of July as expected; and second, whether OPEC+ will proceed with another round of production increases at its August 2 meeting.