Oil prices fell on Thursday as weaker global demand forecasts and a surprise build in U.S. crude inventories outweighed supply disruption risks tied to the U.S.-Iran conflict in the Strait of Hormuz. Brent crude futures dropped $2.20, or 2.47%, to $86.78 per barrel by midday trading, while U.S. West Texas Intermediate (WTI) crude declined $2.34, or 2.81%, to $80.93 after five consecutive days of gains.
U.S. crude inventories surge to highest level since June
The Energy Information Administration reported a 17.4 million-barrel increase in U.S. commercial crude stocks for the week ending August 7, the largest weekly gain since January 2023. This exceeded analyst expectations, which had predicted a 1.4 million-barrel draw. The unexpected rise in inventories added downward pressure on prices despite ongoing supply risks in the Middle East.
Demand forecasts revised downward amid higher fuel prices
Both the International Energy Agency (IEA) and OPEC reduced their global oil demand growth projections for 2026. The IEA now expects a 1.6 million barrels per day (bpd) contraction in oil consumption this year, up from its previous forecast of a 1 million bpd decline, citing restricted fuel supplies and elevated prices linked to the conflict. OPEC similarly lowered its 2026 demand growth forecast to 580,000 bpd from prior estimates.
Strait of Hormuz tensions remain a price floor
Despite the bearish demand outlook, oil prices found support from persistent supply disruptions in the Strait of Hormuz, a critical chokepoint for global oil shipments. Attacks on shipping lanes and competing claims over control of the strait have kept supply risks elevated. Iran’s newly appointed Basij paramilitary chief stated on Thursday that the strait is "under Iran's control and management," a day after U.S. President Donald Trump asserted that the United States had "total control" of the waterway.
Negotiations stall as attacks continue
Talks between the U.S. and Iran to de-escalate the conflict have made no progress in reviving a June interim agreement, according to a senior Iranian source. Meanwhile, Houthi attacks in the Red Sea and Bab el-Mandeb Strait have further disrupted shipping, forcing vessels to reduce transparency by turning off tracking signals. The IEA noted that the "safety situation for navigation in these waters has further deteriorated," exacerbating supply chain uncertainties.
Market reactions reflect competing forces
Analysts highlighted the dual pressures on oil markets: weak demand due to high prices and supply constraints from geopolitical risks. UBS analyst Giovanni Staunovo noted that the downside for prices should be limited as long as flows through the Strait of Hormuz remain depressed. The conflict’s impact on global oil markets underscores the interconnectedness of geopolitical stability and energy economics, with consumers and businesses adjusting consumption patterns in response to elevated fuel costs.
For now, oil prices remain below $100 per barrel, a level significantly lower than dire predictions made at the conflict’s outset. The market’s resilience reflects a balance between supply-side shocks and demand-side adjustments, though risks remain skewed toward further volatility if negotiations fail or attacks escalate.