Oil prices drop 1% as weak demand outlook offsets supply uncertainty

Oil prices experienced a significant decline of 1% on Thursday in Asian trade, as weak demand forecasts from major industry bodies overshadowed ongoing worries about potential supply disruptions in West Asia. Brent oil futures fell 1.15% to $87.96 per barrel, while West Texas Intermediate crude futures dropped 1.2% to $82.24 per barrel.

The price decline followed a mixed session the previous day, marked by conflicting statements from the United States and Iran regarding the status of the Strait of Hormuz. The Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) both reduced their 2026 oil demand forecasts in their latest monthly reports, released on Wednesday.

OPEC lowered its global oil demand growth forecast for 2026 to 580,000 barrels per day, marking its fourth reduction in 2024. The IEA forecast a 1.6 million barrel per day decrease in oil demand from the prior projection of 1 million barrels per day. Both organizations cited concerns over slowing economic growth, constrained fuel supplies, and rising prices resulting from the U.S.-Israeli conflict with Iran.

The oil market faced additional pressure from a surprise 17.4 million barrel increase in U.S. oil inventories the previous week, coupled with a notable reduction in the Strategic Petroleum Reserve. However, oil prices remained buoyant throughout the week, despite the lack of significant advancements in resolving tensions between the U.S. and Iran and the reopening of the Strait of Hormuz.

Both the United States and Iran claimed control over the crucial waterway, while shipping data indicated a substantial slowdown in activity in the region since the escalation of military actions between the two nations in late July and early August. The Hormuz Strait has emerged as a critical concern for oil markets, as it accounted for approximately 20% of global oil consumption prior to the Iran war.

The Iran-backed Houthis in Yemen intensified the concerns over potential supply disruptions in West Asia after initiating attacks on ships in the Red Sea and the Bab el-Mandeb Strait, another vital oil shipping route.