Oil Prices Drop as Demand Concerns and US Stockpile Build Outweigh Mideast Tensions

Oil prices fell by more than $1 a barrel in early trading on Thursday, pressured by downgraded global demand forecasts and a surprisingly large build in U.S. crude inventories. The bearish sentiment overshadowed persistent supply concerns stemming from deadlocked U.S.-Iran negotiations.

By 0100 GMT, Brent futures had dropped $1.29, or 1.5%, to $87.69 a barrel. U.S. West Texas Intermediate (WTI) crude declined $1.30, or 1.6%, to $81.97 a barrel.

Demand Outlook Dims

Two of the world's leading energy bodies revised their consumption forecasts downward, signaling a weaker outlook. The Organization of the Petroleum Exporting Countries (OPEC), in its monthly report, lowered its 2026 world oil demand growth forecast to 580,000 barrels per day (bpd).

Similarly, the International Energy Agency (IEA) said it now expects a 1.6 million bpd contraction in global consumption this year, a significant revision from its previous forecast of a 1 million bpd decline. Both agencies cited restricted fuel supplies and higher prices resulting from the conflict in the Middle East as key factors curtailing demand.

Surprise Surge in US Stockpiles

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Adding to the downward pressure, U.S. commercial crude stockpiles recorded their largest weekly increase since January 2023. The Energy Information Administration (EIA) reported on Wednesday that inventories surged by 17.4 million barrels to 424.4 million barrels for the week ending August 7.

This figure starkly contrasted with market expectations. Analysts in a Reuters poll had anticipated a 1.4 million-barrel draw. The EIA attributed the substantial build to a slump in exports.

Geopolitical Tensions Provide a Floor

Despite the bearish data, ongoing geopolitical tensions in the Gulf provided a floor for prices, preventing a steeper slide. A senior Iranian source reported Wednesday that there had been no progress in talks with the U.S. to end the conflict.

Supply chain risks remain elevated following recent attacks on shipping in the Strait of Hormuz and the Bab el-Mandeb Strait, two critical chokepoints for oil exports. According to analysts at Haitong Futures, the deteriorating security situation is forcing vessels to turn off their signals, which "reduces transparency in shipping and makes it more difficult for the market to track and assess actual supply levels."