Oil prices drop as markets parse weak demand outlook, Hormuz uncertainty

Oil prices retreated on Thursday as markets parsed ongoing uncertainty over supplies from the Gulf region and worries over a weak outlook for crude demand. 

Benchmark Brent oil futures had fallen 2.5% to $86.73 a barrel by 09:10 ET (13:10 GMT), while U.S. West Texas Intermediate crude futures had dropped 2.8% to $80.57 a barrel.   

Conflicting signals from the U.S. and Iran on the status of the Strait of Hormuz have contributed to volatility in crude markets this week. However, oil prices are sitting on strong gains over the past week, with traders noting little progress towards a deal to end the Iran war and reopen the Strait of Hormuz.

Washington and Tehran have asserted this week that they had control of the key waterway, while shipping data showed activity in region had largely stalled after military action between the U.S. and Iran through late-July and early-August. The Strait of Hormuz has become a key point of focus this year for oil markets, given that it supplied roughly 20% of the world’s oil consumption prior to the outbreak of the war in late February. 

Yemen’s Iran-backed Houthis added to concerns over increased Gulf supply disruptions after they began attacking ships in the Red Sea and the Bab el-Mandeb Strait, another key oil shipping route. 

OPEC, IEA cut 2026 demand forecast 

With U.S.-Iran talks seemingly at an impasse, markets have taken note of signs of waning oil demand in the months ahead.

The Organization of the Petroleum Exporting Countries and the International Energy Agency both trimmed their 2026 oil demand forecasts in respective monthly reports released on Wednesday.

The OPEC cut its global oil demand growth forecast for 2026 to 580,000 barrels per day, its fourth such cut this year. Separately, the IEA forecast a 1.6 million bpd drop in oil demand this year, down from its prior forecast for growth of 1 million bpd.

Both entities noted fears over cooling economic growth, restricted fuel supplies, and rising prices stemming from the Iran war.

Oil was also pressured by data showing a surprise, 17.4 million barrel build in U.S. oil inventories last week, although other data showed a sharp contraction in Washington’s Strategic Petroleum Reserve. The U.S. drew heavily on the SPR this year to offset supply shocks stemming from the Iran conflict.