Oil Prices Fall as Rising Supply and Soft Demand Outweigh Middle East Disruption

Crude oil prices declined on Thursday despite escalating conflict near the Strait of Hormuz and a sharp reduction in U.S. crude stockpiles. Brent crude fell 1.7% to approximately $104.30 per barrel, while West Texas Intermediate slipped 1.1% to around $94.03 per barrel. The price drops occurred even after two commercial vessels sank following projectile strikes within 24 hours, and preliminary industry estimates indicated U.S. inventories fell by 11.1 million barrels last week.

Traders are holding back from bidding prices higher until escalation leads to actual physical losses in market supply. Expanding production in key regions is cushioning the geopolitical impact. Middle Eastern crude exports rebounded to roughly 75% of prewar levels, while Russian output rose by 65,000 barrels per day in September to 8.43 million barrels per day. Total global oil supply expanded by 2.5 million barrels per day in September to reach 102.3 million barrels per day, supported by alternative shipping arrangements that continue delivering crude to buyers.

Concurrently, weakening global consumption is exerting broader pressure on the market. Global oil demand is expected to contract by an average of 2.6 million barrels per day in 2026, with lower diesel usage responsible for a significant share of the drop due to elevated fuel costs and sluggish economic activity. Market participants are observing whether potential U.S. policy changes regarding shadow-fleet vessel sanctions will reduce freight bottlenecks, or if further security incidents disrupt export volumes enough to trigger price increases.