Oil drops on lower demand forecasts despite deadlock in US-Iran talks

Oil prices declined sharply on Thursday amid growing concerns over reduced global demand, despite ongoing tensions in U.S.-Iran negotiations over the Middle East conflict. Brent crude futures fell $1.29, or 1.5 percent, to $87.69 a barrel by 0100 GMT, while U.S. West Texas Intermediate (WTI) crude dipped $1.30, or 1.6 percent, to $81.97. The decline came after major energy organizations revised downward their projections for global oil demand, citing the impact of the U.S.-Israeli war on Iran. The Organization of Petroleum Exporting Countries (OPEC) announced on Wednesday that it had cut its forecast for global oil demand growth in 2026 to 580,000 barrels per day. This marked a significant reduction from previous estimates. On the same day, the International Energy Agency (IEA) released a report stating that global oil consumption would contract by 1.6 million barrels per day this year, a sharp revision from its earlier projection of a 1 million barrel-per-day decline. The IEA attributed the drop to restricted fuel supplies and increased prices resulting from the ongoing conflict, which have suppressed demand worldwide. Adding to the downward pressure on oil prices was a surprising increase in U.S. commercial crude oil inventories. According to the Energy Information Administration (EIA), crude oil stocks rose by 17.4 million barrels during the week ending August 7, reaching 424.4 million barrels, the highest level since June 5. This figure far exceeded analyst expectations, which had predicted a decrease of 1.4 million barrels. The unexpected buildup was partly due to a slump in exports, raising questions about the balance between supply and demand in the global market. Despite these negative factors, oil prices remained supported by the unresolved tensions between the United States and Iran. A senior Iranian official confirmed that no progress had been made in recent talks aimed at reviving an interim agreement reached in June and setting a clear timeline for its implementation. The stalemate has left the future of diplomatic efforts uncertain, with both sides showing little willingness to compromise. Meanwhile, attacks on shipping lanes in the Strait of Hormuz and the Bab el-Mandeb Strait underscored the continued risks to oil supply from the region. These critical waterways serve as vital arteries for Middle Eastern oil exports, and recent incidents have disrupted maritime traffic. Analysts at Haitong Futures noted that the worsening security conditions in these areas have forced ships to disable their tracking systems, reducing visibility into actual supply levels and complicating market assessments. The situation highlights the complex interplay between geopolitical tensions and economic fundamentals in shaping global oil markets. While the immediate outlook for demand appears bleak, the persistent uncertainty surrounding the U.S.-Iran standoff continues to provide a degree of support to oil prices. As the conflict drags on, the balance between rising supply constraints and falling demand will likely remain a key determinant of price movements in the coming months.