By: Economy Middle East

Oil prices advanced on Monday as fading expectations of a U.S.-Iran peace breakthrough and a sharp slowdown in tanker traffic through the Strait of Hormuz renewed concerns about supply from the Middle East. The gains reflected a rebuilding geopolitical risk premium after another weekend without an agreement to end the conflict. 

Brent crude futures rose as much as 1 percent to $89.40 per barrel. They were last trading 72 cents higher at $89.20 by 2:29 a.m. GMT. U.S. West Texas Intermediate crude futures increased 44 cents to $82.83 per barrel.

Both benchmarks gained more than 5 percent during the previous week after attacks on tankers operated by Abu Dhabi National Oil Company in the Strait of Hormuz and an attack on a Saudi Aramco refinery.

Diplomatic hopes fade

Iranian Foreign Minister Abbas Araqchi said during the weekend that Iran had not decided whether to resume negotiations with the United States.

U.S. President Donald Trump urged Americans to accept slightly higher gasoline prices while the conflict continues.

Priyanka Sachdeva, head of market insights at Phillip Nova in Singapore, said oil had recovered almost completely from the lows recorded in early August. She attributed the rebound to fading expectations of a more permanent U.S.-Iran resolution and the return of geopolitical risk premiums to crude markets.

Sachdeva nevertheless expected limited additional upside unless the market receives clear evidence of renewed aggression in the Strait of Hormuz, particularly attacks causing material damage to tankers or oil infrastructure.

Tanker traffic slows

Shipping through the Strait of Hormuz declined during the weekend following the reported tanker attacks. Kpler ship-tracking data showed that five commodity vessels crossed the waterway on Saturday, while no transits were registered on Sunday. The previous weekend recorded 31 passages.

The UAE accused Iran of attacking a third ADNOC-operated vessel while it was transiting the strait on Friday, according to the Emirates News Agency. The accusation followed two other incidents involving ADNOC vessels in the waterway on Thursday evening.

The combination of stalled diplomacy, reduced vessel traffic and reported attacks kept supply risks at the center of oil trading. However, the restrained scale of the price advance suggested that the market was still weighing those risks against weaker consumption expectations and the absence of confirmed large-scale damage to production infrastructure.

Supply tightness meets weak demand

The International Energy Agency’s August report shows why the market remains divided between supply anxiety and demand weakness. The agency expects global oil consumption to decline by 1.6 million barrels per day in 2026, a reduction 510,000 barrels per day larger than projected in July. Demand contracted by an estimated 4.9 million barrels per day during the second quarter and is forecast to fall 2.8 million barrels per day in the third before returning to growth during the final quarter. Consumption is then projected to expand by 2.4 million barrels per day in 2027.

Supply conditions remain considerably tighter. The IEA said global production rose 2.4 million barrels per day in July to 101.5 million, but remained 6.3 million below its year-earlier level as 8.3 million barrels per day of Gulf output stayed shut in. Its inventory assessment showed observed stocks falling by 69 million barrels in July to below 7.9 billion. Inventories have declined by 410 million barrels since the conflict began, while the projected third-quarter market deficit widened to 1.8 million barrels per day, more than twice July’s estimate.

Strait of Hormuz oil tanker traffic

Forecasts remain divided

The U.S. Energy Information Administration assumes Hormuz shipments will remain severely constrained through August before increasing gradually from September. Its latest outlook forecasts Brent spot prices averaging approximately $85 per barrel in the third quarter and $78 in the fourth. The agency expects most shut-in production to return during the first quarter of 2027, allowing inventories to rebuild and Brent to average $69 next year. It also forecasts global liquid-fuels production at 100.8 million barrels per day in 2026, compared with consumption of 102.7 million.

OPEC presents a less bearish demand view than the IEA. Its monthly report forecasts global consumption growing by approximately 600,000 barrels per day in 2026, supported by a similar increase across non-OECD economies while OECD demand slips by around 40,000. OPEC expects growth to accelerate to approximately 2.2 million barrels per day in 2027. The contrast illustrates the uncertainty confronting traders: forecasters disagree on the depth of demand weakness, but reduced Gulf exports, depleted inventories and disrupted refining continue to give geopolitical developments an unusually direct influence over prices. Meanwhile, the IEA’s supply projection shows output declining by 4.3 million barrels per day in 2026 before rebounding by 8.3 million barrels per day next year.

Earlier price swings

Oil’s latest rise follows several sharp reversals driven by changing expectations for diplomacy. On August 4, Brent dropped $4.41, or 5.3 percent, to $79.36 per barrel, while WTI fell $4.57, or 5.7 percent, to $75.77. The selloff followed comments from Qatari and U.S. officials that raised hopes of progress toward ending the conflict and improving Hormuz flows. 

That optimism faded rapidly. On August 10, both benchmarks climbed approximately 5 percent as the United States and Iran demanded compensation and expectations for reopening the strait weakened. The market reversal demonstrated how diplomatic statements were moving prices even before any confirmed change in physical supply.

Demand meets risk

Demand concerns regained control on August 13. Brent settled $1.91 lower at $87.07 and WTI dropped $2.02 to $81.25 after U.S. crude inventories increased by 17.4 million barrels, their largest weekly gain since January 2023. OPEC and the IEA also reduced their 2026 demand projections, outweighing continuing supply risks and ending the benchmarks’ run of gains. 

Prices rebounded August 14 after the United States threatened to maintain its naval blockade of Iran indefinitely and intensify economic pressure. Brent rose $1.43 to $88.50, while WTI gained $1.56 to $82.81. Reports of attacks on UAE tankers and slower Hormuz shipping reinforced concerns over supply, although weaker demand forecasts and higher U.S. inventories continued to restrain the market’s response.