UAE’s Record Oil Output In June Signals Gulf Recovery, But IEA Warns Conflict Could Derail Markets

The UAE led a sharp rebound in Gulf oil production in June, raising crude output to a record 4.1 million barrels per day (bpd) as exports through the Strait of Hormuz partially resumed, the International Energy Agency (IEA) said in a report Friday.Boosting productionThe UAE’s production surpassed its previous record of 4 million bpd set during the 2020 OPEC+ price war, underscoring Abu Dhabi’s aggressive strategy to restore exports after exiting OPEC earlier this year.The IEA said the UAE responded more aggressively than its Gulf peers by deploying its own tanker fleet and chartering additional vessels, including ships operating in “dark mode” with transponders switched off to move crude through the Gulf.Tanker tracking data also showed the country restored exports to pre-war levels in June, according to Bloomberg.The UAE has also accelerated long-term infrastructure plans, including ADNOC’s West-East 1 Pipeline, which is expected to double export capacity through Fujairah, outside the Strait of Hormuz, by 2027. ADNOC also plans to invest $55 billion in upstream and downstream projects over the next two years.The rebound in Gulf exports helped erase much of the war-driven surge in oil prices, with North Sea Dated crude falling to around $68 per barrel in early July before recovering to approximately $77 following renewed exchanges of fire between Washington and Tehran.Gulf outputAcross the Gulf, Saudi Arabia increased output by 900,000 bpd to 7.34 million bpd, while Kuwait increased output by 630,000 bpd to 1.37 million bpd and Iraq boosted production by 480,000 bpd to 1.96 million bpd, according to IEA data.Despite the increases, all three countries remained below their implied production targets under the OPEC+ agreement, with Saudi Arabia producing 2.95 million bpd below target, Iraq 2.39 million bpd lower, and Kuwait trailing by 1.26 million bpd.Across the broader alliance, total OPEC+ production rose from 30.3 million bpd in May to 32.44 million bpd in June, while OPEC output climbed by more than 2 million bpd to 18.39 million bpd.Russia, the group's largest non-OPEC producer, increased production modestly to 8.86 million bpd from 8.74 million bpd, remaining 910,000 bpd below its target. Kazakhstan continued to exceed its production quota, pumping 1.89 million bpd, or 290,000 bpd above its implied target, while Nigeria, Oman, and Gabon were among the few producers that met or slightly exceeded their targets.Oil demand recovers The IEA said global oil demand is recovering from a May low of 97.9 million bpd, supported by seasonal travel and improving fuel supplies. Nevertheless, demand is still projected to decline by 1 million bpd in 2026, marking the first annual contraction since 2020, before rebounding by 2 million bpd next year.The agency expects global oil supply to average 102.6 million bpd in 2026, with production expanding by 7.5 million bpd in 2027 if shipping through the Strait of Hormuz continues to normalize.Despite rising crude supplies, refined fuel markets remain constrained. Global refinery runs increased by 1.5 million bpd in June but were still 6 million bpd below year-earlier levels as Middle Eastern export refineries remained slow to restart, while attacks on Russian refining infrastructure and reduced operating rates in Asia continued to tighten diesel and gasoline supplies.Gas markets also under pressureThe disruption has also spilled into natural gas markets. The IEA said LNG exports from Qatar and the UAE fell by 35 billion cubic metres (bcm) between March and June compared with a year earlier, as the effective closure of the Strait of Hormuz disrupted nearly 20% of global LNG supply.Although additional LNG production from North America, Africa and other regions offset much of the shortfall, global LNG output still declined by 4% during the period.The agency expects global natural gas demand to fall by 0.5% (20 bcm) in 2026, marking the third annual decline this decade. Demand in the Middle East is projected to contract by 4%, its first annual decline since 1993, while higher LNG prices are expected to reduce gas consumption across Asia and Europe.The IEA said both oil and gas market forecasts remain dependent on a lasting de-escalation in the Gulf, warning that renewed conflict could disrupt tanker traffic through the Strait of Hormuz, delay the restart of regional production, tighten fuel supplies, and prolong volatility across global energy markets.