Oil falls on demand cuts as US-Iran talks stall and IEA flags supply deficit
Crude prices retreated on Thursday after analysts slashed 2026 demand forecasts, even as a severe projected supply shortfall from the US-Iran conflict keeps physical markets tightly balanced.
Brent crude futures fell $1.29, or 1.5 per cent, to $87.69 a barrel on Thursday. US West Texas Intermediate dropped $1.30, or 1.6 per cent, to $81.97 a barrel as market participants digested revised consumption estimates.
The declines followed analyst downgrades for global oil demand in 2026. These forecast cuts reflect the broader economic disruptions triggered by the ongoing US-Israeli conflict with Iran.
Despite the dip in prices, the geopolitical risk premium remains entrenched as diplomatic efforts between Washington and Tehran have broken down. Washington is maintaining a blockade of Iranian ports to exert economic pressure, while US President Donald Trump has claimed that his administration holds "total control" over the strategic waterway.
Pakistan, acting as a mediator, stated that the broader peace process has stalled, though the deadline for a US-Iran memorandum of understanding might still be extended. An Iranian senior official told Reuters that negotiations to revive a June interim agreement have made no headway and lack an implementation timeline.
For investors and energy companies, the physical market realities present a stark contrast to the demand concerns. The International Energy Agency warned on Wednesday that the global oil market will face a supply shortfall of 1.8 million barrels per day this quarter.
This projected deficit is more than double the agency’s earlier estimate. Furthermore, the IEA expects the shortfall for 2026 to be the largest recorded in five years, tightening global oil and refined-product markets.
Physical supply routes remain highly vulnerable to escalation. Attacks on shipping in the Strait of Hormuz and the Bab el-Mandeb Strait on Tuesday highlighted the fragility of the Middle East's primary oil and gas export corridors.
This Middle East instability is compounding supply pressures from the Russia-Ukraine conflict and strikes on energy infrastructure, including ports and refineries. Consequently, crude remains on track for a weekly gain despite Thursday's pullback, as traders navigate severe volatility.
