Oil Prices Stabilize After Sharp Weekly Drop on Hormuz Progress, U.S. Inventory Build

Oil prices showed little movement in early trading Thursday, holding onto steep weekly losses as investors weighed signs of de-escalation in the Middle East against fresh data indicating weaker U.S. demand.

As of 2:55 AM ET, Brent crude futures for October delivery were trading around $79.71 per barrel, while West Texas Intermediate (WTI) crude futures were near $75.38 per barrel. Both benchmarks are down more than 10% this week, pressured by a combination of geopolitical developments and fundamental supply-demand signals.

Hormuz Tensions Ease

A key factor weighing on prices is a recent agreement between Iran and Oman on the coordinates for a proposed shipping route through the Strait of Hormuz. The strait is a critical global energy chokepoint, responsible for the transit of about one-fifth of the world's oil and liquefied natural gas (LNG).

The prospect of increased tanker traffic through the waterway has helped ease market fears of a prolonged supply disruption, which had previously added a significant risk premium to prices. However, analysts caution that a full resolution has not been reached, with outstanding issues including cargo fees and security arrangements. According to analysts at ING, a substantial recovery in energy flows ultimately depends on the progress of broader U.S.-Iran negotiations.

U.S. Stockpiles Point to Softer Demand

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Adding to the downward pressure, recent U.S. government data revealed an unexpected rise in domestic crude oil inventories. Stockpiles increased by approximately 2.5 million barrels last week, directly contradicting analyst expectations for a draw of 1.5 million barrels.

This surprise build suggests a potential softening of demand in the world's largest oil-consuming nation. In contrast, the market for refined products appeared tighter, as the same report showed that inventories of gasoline and distillates fell by 1.64 million and 3.47 million barrels, respectively.

Lingering Geopolitical Risks

Despite the positive development in the Strait of Hormuz, the global energy supply landscape remains fraught with risk. Analysts note that ongoing threats to shipping in the Red Sea by Houthi militants, the impact of the Russia-Ukraine conflict on maritime trade, and disruptions to a major export route from Kazakhstan continue to pose a threat to supply stability.