Crude falls below $90 as agencies cut demand forecasts despite Gulf risks
Global oil benchmarks retreated despite ongoing Middle East shipping disruptions, as major energy agencies sharply downgraded consumption projections due to the economic fallout from the US-Israeli conflict with Iran.
Brent futures declined 1.5 per cent to $87.69 a barrel, dipping below the $90 threshold. US West Texas Intermediate also fell 1.2 per cent to settle at $82.
The price retreat followed bleak consumption updates from the world’s leading energy watchdogs. The Organisation of the Petroleum Exporting Countries reduced its 2026 global demand growth projection to 580,000 barrels per day.
The International Energy Agency issued an even starker revision on Wednesday. It now anticipates global oil consumption will shrink by 1.6 million barrels per day this year, a significant downgrade from its prior estimate of a one million barrel daily decline.
The agency blamed the sharper contraction on restricted fuel supplies and elevated prices. These market pressures are a direct result of the ongoing US-Israeli war on Iran, which continues to weigh heavily on global demand.
Despite the demand-driven price drop, physical market risks remain acute due to stalled peace negotiations. Diplomatic efforts between Washington and Tehran appear deadlocked, with both sides hardening their stances while US President Donald Trump claims total control over the Strait of Hormuz.
Physical threats to supply chains intensified on Tuesday with fresh attacks on shipping in both the Strait of Hormuz and the Bab el-Mandeb Strait. State oil company ADNOC reported that 15 of its vessels have been targeted in the Hormuz waterway since the regional conflict erupted.
These critical export routes for Middle Eastern hydrocarbons are facing severe logistical friction. The persistent threat of maritime attacks is driving up marine insurance premiums and forcing commercial fleets to adopt longer, more expensive transit routes.
Wall Street banks warn that prolonged logistical friction could rapidly erase the current demand-driven discount. JPMorgan calculates that every additional month of regional disruption could add $7 to $8 to Brent prices, potentially pushing the benchmark to $114 if the crisis lasts a quarter.
Goldman Sachs similarly cautioned that Brent could spike to $120 a barrel if the Strait of Hormuz remains compromised. However, the bank’s base case assumes regional tensions will eventually de-escalate, forecasting fourth-quarter prices to average $80 before falling to $75 next year.
Market analysts note that underlying supply fundamentals will ultimately dictate long-term pricing once the geopolitical premium fades. Anindya Banerjee, head of commodity research at Kotak Securities, said the direction of the market outlook remains unchanged even if the timeline has shifted.
"We still expect oil to cool as we move into 2027, for three reasons," Banerjee noted. He pointed to expanding supply outside the conflict zone, OPEC+ raising production targets, record output from the UAE, and non-OPEC producers responding to higher prices.
