Oil Prices Dip Below $90 as Global Demand Forecasts Sink amid Iran Tensions

Oil Prices Dip Below $90 as Global Demand Forecasts Sink amid Iran Tensions​

Global crude oil prices fell on Thursday after major international bodies revised downward their forecasts for future demand. The dip occurred despite persistent supply concerns arising from the escalating U.S.-Israeli war targeting Iran. Brent futures dropped significantly, while WTI crude also saw a notable decline following reports of unexpected increases in U.S. commercial stockpiles.

Key Forecasts and Demand Contractions​

The downturn was primarily driven by weakened future demand projections. The Organisation of Petroleum Exporting Countries (OPEC) lowered its 2026 global oil demand growth forecast to 580,000 barrels per day in its latest market report. Similarly, the International Energy Agency (IEA) reduced its outlook for this year, now expecting a 1.6 million barrels per day contraction in oil consumption.

The IEA attributed the sharper demand contraction directly to restricted fuel supplies and higher prices resulting from the U.S.-Israeli conflict on Iran. This suggests that geopolitical risk is already negatively impacting future market fundamentals.

Inventory Surges Weighs on Crude Prices​

Adding pressure to crude prices was an unexpected rise in U.S. commercial inventories. The Energy Information Administration reported that last week's inventory increase was the largest weekly rise since January 2023, coupled with a decline in exports. This supply buffer created headwinds for the market amid ongoing geopolitical instability.

Geopolitical Risks Keep Market Elevated​

Despite the price declines, the broader risk of conflict remains elevated, preventing a deeper crash. Stalled negotiations between Iran and the U.S. regarding an end to Gulf warfare are ongoing, with both sides hardening their positions. The U.S. is reportedly pushing a blockade of Iranian ports as part of increased economic pressure on the nation.

Risks continue due to attacks on shipping in critical transit areas like the Strait of Hormuz and the Bab el-Mandeb Strait, which were reported Tuesday. Both are vital export routes for Middle Eastern oil and gas. The UAE’s ADNOC reported that 15 of its vessels had been attacked in the Strait of Hormuz since the conflict started.

Expert View: The Duration is Critical to Crude Outlook​

Market analysts suggest that the eventual duration of the current disruption will be the most critical factor for future crude prices. JPMorgan estimates that every additional month of ongoing disruption could push Brent up by approximately $7 to $8 a barrel, suggesting that three months of instability could see average monthly Brent prices reach around $114.

Goldman Sachs also warned that Brent could climb to $120 if shipping disruptions through the Strait of Hormuz continue. However, the bank does not expect Middle East tensions to persist indefinitely in its base case scenario.

Long-Term Supply Dynamics and Market Shifts​

Kotak Securities’ Anindya Banerjee noted that while risks remain tilted toward the upside due to potential prolonged disruption through the Red Sea or Hormuz, there are other factors pointing toward a cooling trend by 2027. These include expanding supply outside the conflict zone, increased production targets from OPEC+, and record output from the UAE.