Oil Prices Volatile Amid Strait of Hormuz Closure

Global oil prices experienced high volatility on Thursday, initially rising due to deadly vessel attacks in the Red Sea and Gulf of Oman before declining as demand concerns took hold. Brent crude and West Texas Intermediate futures fell later in the day following a surprise increase of 17.4 million barrels in U.S. commercial crude inventories for the week ending August 7, the largest weekly gain since January 2023.

Market instability is driven by the International Energy Agency and OPEC, both of which lowered demand projections. The International Energy Agency forecast a 1.6 million barrels per day contraction in consumption this year, while OPEC reduced its 2026 growth forecast to 580,000 barrels per day. These declines are attributed to the US-Israeli war on Iran and a significant drop in Chinese demand caused by electric vehicle adoption and reduced stockpiling.

Supply remains severely constrained by a six-month closure of the Strait of Hormuz, which has resulted in approximately 5.5 million barrels per day of production shut-ins. This disruption has pushed diesel cracks to nearly $70 per barrel. Additional risks include a leaking tanker near the coast of Oman releasing 800,000 barrels of sanctioned Russian oil. Diplomatic efforts to revive a June interim deal between the United States and Iran to reopen the waterway remain in a deadlock, with Iranian sources reporting no progress.