Oil holds near US$81 per barrel as Hormuz standoff, softer demand outlook keeps markets on edge

Oil prices remained close to US$81 per barrel on Friday as investors remained cautious awaiting progress on resolving the dispute at the Strait of Hormuz. Brent crude traded around US$87 after falling the previous day, with traders weighing the persistent geopolitical risks against evidence that oil demand may be weakening amid the ongoing conflict and elevated energy costs.

While crude continues to flow through the strategic waterway, some vessels are reportedly sailing without transponders to mitigate heightened security risks. The United States claims up to nine million barrels of crude oil are currently transiting the Strait daily.

The critical importance of the Strait to global energy markets is underscored by the potential for a prolonged disruption to supply, prices, and economic growth. Heightened security concerns have intensified, compounded by growing doubts about global oil demand. The International Energy Agency recently reduced its global oil demand forecast, projecting a slowdown due to prolonged conflict and higher prices.

The Organization of the Petroleum Exporting Countries also lowered its 2026 global oil demand growth forecast to 580,000 barrels per day, marking its fourth consecutive downward revision.

Despite the ongoing tension, the US dollar showed mixed performance, influenced by data indicating US producer prices remained unchanged in July. This dampened expectations of a Federal Reserve rate hike in September, with Fed funds futures now showing a 35% probability of a rate increase in September, down from 40% the previous day.

The dollar index rose marginally following the release of the producer-price data. While the initial impact of Middle East conflict-related disruptions to oil prices may be easing, the deteriorating outlook for global demand remains a key factor influencing markets. Investors are now closely monitoring the situation at the Strait of Hormuz and the trajectory of US monetary policy for potential shifts in global market dynamics.