By: Economy Middle East

Oil prices moved lower on Thursday, as a weaker global consumption outlook displaced the momentum built during several rising sessions. Continuing supply concerns prevented a sharper retreat, however, because negotiations had produced no progress toward reopening the Strait of Hormuz. 

Brent crude futures fell 0.12 percent to $88.87 per barrel by 9:51 UAE time, reducing gains accumulated across the previous six sessions. U.S. West Texas Intermediate crude declined 0.24 percent to $83.07 per barrel after advancing during the preceding five sessions.

Talks remain stalled

A senior Iranian source said Wednesday that discussions had made no progress toward reviving an interim agreement reached in June or establishing a timetable for its implementation. The absence of a breakthrough left the prospect of restoring traffic through the strategically important waterway unchanged.

With the Hormuz outlook unchanged after helping lift crude prices during the previous week, traders turned their attention toward a surprise increase in U.S. crude stocks and reduced consumption projections from OPEC and the International Energy Agency.

Inventories shift attention

U.S. commercial crude inventories registered their largest weekly increase since January 2023 as exports declined, according to Energy Information Administration data released Wednesday. Stocks rose by 17.4 million barrels to 424.4 million barrels during the week ended August 7, their highest level since June 5. Analysts surveyed by Reuters had expected inventories to fall by 1.4 million barrels.

OPEC lowered its forecast for global oil demand growth in 2026 to 580,000 barrels per day. The IEA simultaneously projected that consumption would contract by 1.6 million barrels per day this year, compared with the 1 million-barrel-per-day decline it expected one month earlier. The agency attributed the deeper contraction to elevated prices and constrained supply caused by the U.S.-Israeli war with Iran.

Despite the demand concerns, the continuing impasse between Washington and Tehran over ending the Gulf conflict supported prices by sustaining the risk of further supply disruption.

Haitong Futures analysts said navigation conditions in the affected waters had deteriorated further, prompting vessels to switch off tracking signals. They said the reduced shipping transparency was making it harder for the market to monitor and evaluate actual supply volumes.

Supply outlook tightens

The IEA’s August assessment found that global oil output rose by 2.4 million barrels per day in July to 101.5 million, yet remained 6.3 million below its year-earlier level. About 8.3 million barrels per day of Gulf production was still shut in. The agency now expects global supply to decline by 4.3 million barrels per day during 2026 before rebounding by 8.3 million to 110.3 million barrels per day in 2027.

Refinery activity also reflected disruption. The same report placed July crude throughputs at 80.9 million barrels per day, almost 5 million below the previous year. The IEA expects average runs to fall by 2.5 million barrels per day in 2026, then rise by 3.5 million in 2027. Reduced Middle East product exports and attacks on Russian refineries contributed to lower third-quarter estimates, while tight light and middle distillate markets pushed Atlantic Basin cracks and refining margins to records.

Market signals diverge

Inventory trends beyond the United States remain tight. The IEA estimated that observed stocks fell by 69 million barrels in July and slipped below 7.9 billion barrels. Holdings were 410 million barrels lower than at the start of the war. The agency projects a third-quarter market deficit of 1.8 million barrels per day, more than double its previous estimate, although it expects the balance to return to surplus near the end of 2026.

OPEC presents a different demand trajectory. Its August report forecasts global consumption growth of about 0.6 million barrels per day in 2026, with demand in OECD economies declining by roughly 40,000 barrels per day and non-OECD consumption rising by about 0.6 million. It expects global growth to accelerate to 2.2 million barrels per day in 2027. OPEC also reported that production by countries participating in its cooperation framework increased by 1.42 million barrels per day in July to 37.66 million.

The latest U.S. figures offer mixed indications. The EIA’s weekly report showed refineries operating at 96.2 percent of capacity and processing 17.2 million barrels per day. Crude imports increased by 1.14 million barrels per day to 7.3 million, helping lift stocks. Yet total products supplied over four weeks averaged 20.7 million barrels per day, 2.1 percent below the comparable period in 2025, while gasoline inventories remained 6 percent below their five-year seasonal average.

Forecast revisions accelerate

The 2026 demand outlook has changed. In January, the IEA expected consumption to grow by 930,000 barrels per day as economic conditions normalized and petrochemical demand recovered. After the United States and Israel launched strikes on Iran on February 28, disrupted Gulf flows, higher prices and weaker economic conditions altered that view.

By March, the agency had reduced projected growth to 640,000 barrels per day and said the Strait disruption represented the largest oil supply shock on record. IEA member countries simultaneously agreed to make 400 million barrels from emergency reserves available. April brought a forecast contraction of 80,000 barrels per day, while May deepened the expected decline to 420,000 barrels per day.

The Strait’s scale explains the market’s sensitivity to each diplomatic development. EIA data show that about 20 million barrels per day passed through Hormuz in 2024, equal to approximately one-fifth of worldwide petroleum liquids consumption. Limited bypass capacity means even temporary interruptions can delay deliveries and raise transportation costs.

Prices have reflected those shifting expectations. Brent surged as high as $105 per barrel on July 23 before diplomatic signals helped produce sharp reversals. On August 3, the benchmark fell 7 percent to $83.77 after President Donald Trump postponed an attack while seeking an agreement. It then settled at $88.98 on August 12 as stalled talks revived concern over supplies.