Oil steady near $89 as Mideast supply risks clash with demand cuts
Oil prices held near $89 a barrel as a severe chokehold on Middle East shipping routes offset lower demand forecasts, leaving markets to weigh temporary supply disruptions against long-term demand destruction.
Brent futures added 7 cents to settle at $88.98 a barrel on Wednesday, while U.S. West Texas Intermediate rose 7 cents to $83.27. The marginal gains masked a fierce tug-of-war between severely constrained physical supply and weakening consumption expectations.
The immediate supply pressure remains acute. Shipping data shows transit through the Strait of Hormuz plummeted to just eight vessels on Tuesday, a fraction of the 125 to 140 ships that passed daily before the conflict. This disruption followed reports of separate attacks on commercial shipping in the Strait of Hormuz and the Bab el-Mandeb Strait by U.S. forces and Yemen's Houthi militants.
Hopes for a quick resolution to these bottlenecks faded after a senior Iranian source revealed no discussions were underway to extend a U.S.-Iran ceasefire. Tehran reportedly views the existing deal as having no start date, rendering an extension meaningless. "The continued strength in oil prices comes as markets grow increasingly doubtful that an agreement can soon be reached to ease disruptions to crude flows from the region or prevent another escalation of the conflict," said Simon-Peter Massabni, head of business development at brokerage XS.com.
Demand destruction risk
Despite the physical supply squeeze, futures faced downward pressure from revised macroeconomic forecasts. The Organisation of the Petroleum Exporting Countries slashed its 2026 world oil demand growth estimate to 580,000 barrels per day. The International Energy Agency offered an even starker view, projecting a 1.6 million bpd contraction for this year.
However, the IEA's supply projections suggest the market will remain deeply undersupplied. The agency forecasts a 4.3 million bpd drop in supply this year, resulting in a 2026 deficit of roughly 1.27 million bpd. This structural shortfall is currently being masked by an acute build in U.S. crude stocks, which posted their largest weekly gain since January 2023 last week due to slumping exports and surging imports.
For market participants, the critical variable is whether the drop in consumption reflects a permanent shift or a temporary necessity. Asian refiners have been forced to reduce operations because they cannot secure enough crude amid the Strait of Hormuz closure. "The question is, after the war, how much of that demand will actually come back? I don't think all of it will," said Simon Wong, portfolio manager at Gabelli.
