Oil prices experienced a downturn on Thursday as market analysts reacted to the International Energy Agency’s (IEA) revised forecast for global oil demand through 2026, coupled with rising tensions between the U.S. and Iran. The adjustments in projections have created a ripple effect, prompting investors to reassess their positions in the market.
Market Reaction to IEA’s Forecast
Brent crude oil futures fell by 30 US cents, or 0.43 per cent, settling at US$69.10 a barrel by 1018 GMT. Concurrently, U.S. West Texas Intermediate (WTI) crude dropped 23 US cents, or 0.36 per cent, to reach US$64.40. The IEA’s announcement indicated that global oil demand would increase at a slower pace than previously anticipated, forecasting a significant surplus despite supply disruptions experienced in January.
The IEA’s monthly report shifted market sentiment, reversing earlier gains that had been bolstered by concerns regarding escalating U.S.-Iran relations. Investors had initially reacted positively to the geopolitical backdrop, but the new demand outlook prompted a reevaluation of the short-term price trajectory.
U.S.-Iran Relations Fuel Market Uncertainty
In the midst of these developments, U.S. President Donald Trump, following discussions with Israeli Prime Minister Benjamin Netanyahu, stated that a definitive agreement with Iran has yet to be established, although negotiations will persist. Trump also indicated the possibility of deploying a second aircraft carrier to the region should diplomatic efforts falter. Details regarding the timing and location of the next round of talks remain unconfirmed, adding to the market’s uncertainty.
These geopolitical concerns have the potential to impact oil supply dynamics significantly, especially given the historical volatility associated with the Middle East.
Inventory Levels and Refinery Utilisation
Adding to the downward pressure on oil prices, a substantial increase in U.S. crude inventories was reported, with stockpiles rising by 8.5 million barrels to reach a total of 428.8 million barrels last week. This figure far surpassed analysts’ expectations, which had predicted a modest increase of 793,000 barrels based on a Reuters poll.
The Energy Information Administration (EIA) also reported a decline in U.S. refinery utilisation rates, which fell by 1.1 percentage points to 89.4 per cent. This drop in utilisation further underscores the challenges facing the domestic oil market, contributing to the overall bearish sentiment.
Why it Matters
The decline in oil prices, driven by a combination of revised demand forecasts and geopolitical uncertainty, highlights the fragility of the current market landscape. As investors navigate these shifting dynamics, the implications for both global supply chains and energy consumers are significant. With potential supply disruptions looming and demand growth expectations tempered, the oil market stands at a critical juncture where strategic decisions will shape its immediate future. The ongoing dialogue between the U.S. and Iran will be particularly influential, as any escalation or resolution could dramatically alter the supply and demand balance in the months ahead.
