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

Oil prices dipped over $1 on Thursday due to revised downward forecasts for global oil demand in 2026, stemming from the US-Israeli conflict with Iran. Despite the supply constraints caused by the war, the market found support. Brent futures plummeted $1.29, or 1.5%, to $87.69 a barrel by 0100 GMT. US West Texas Intermediate (WTI) crude declined $1.30, or 1.6%, to $81.97.

The Organisation of Petroleum Exporting Countries (OPEC) cut its 2026 world oil demand growth forecast to 580,000 barrels per day in its monthly market report on Wednesday. Simultaneously, the International Energy Agency projected a 1.6 million barrel per day (bpd) reduction in consumption this year, down from an earlier estimate of 1 million bpd, attributed to limited fuel supplies and higher prices resulting from the US-Israeli war on Iran.

Oil prices faced additional downward pressure from a surprising increase in US commercial crude oil inventories, which saw the largest weekly gain since January 2023 last week as exports plummeted. The Energy Information Administration reported the week ended August 7 as the highest crude inventories since June 5, with an 17.4 million barrel rise to 424.4 million barrels. This was significantly more than the 1.4 million barrel draw anticipated by analysts in a Reuters poll.

However, the stalled negotiations between Iran and the US to end the Gulf war maintained elevated prices. A senior Iranian source reported on Wednesday that no progress had been made in talks to revive the interim deal signed in June and establish a timeline for its implementation. Attacks on shipping in the Strait of Hormuz and Bab el-Mandeb Strait, two vital export routes for Middle Eastern oil and gas, underscore the persistent supply risks from the region.

Analysts at Haitong Futures warned that the safety situation for navigation in these waters had deteriorated, leading vessels to turn off their signals. This reduces transparency in shipping, making it harder for the market to track and assess actual supply levels.