Oil prices declined on Thursday, with Brent crude falling 1.7% to around $104.30 per barrel and WTI slipping 1.1% to roughly $94.03, even as attacks near the Strait of Hormuz intensified and U.S. crude inventories showed a larger-than-expected draw. The market's muted reaction to these bullish catalysts suggests traders are demanding evidence of actual supply disruptions before paying a higher geopolitical premium.
Hormuz attacks fail to sustain rally
Over the past ten days, attacks around the strategic strait have escalated, with two commercial vessels sinking after separate projectile strikes within 24 hours. Iran has signaled it is increasing pressure on shipping amid heightened tensions with Washington. Yet oil prices failed to hold gains, indicating that investors are increasingly separating the danger to ships from the actual loss of barrels.
Phillip Nova's Priyanka Sachdeva noted in a client note that oil is still reaching buyers through alternative routes and logistical arrangements. While these workarounds are costly and fragile, they have so far prevented the conflict from escalating into a major physical supply shock. This distinction is crucial: until attacks materially reduce exports, each new incident may generate a smaller price response.
Supply recovery blunts war premium
The market also has more barrels to work with than during the worst of the disruption. Russia's crude production rose by 65,000 barrels per day in September to 8.43 million bpd, while Middle Eastern crude exports increased by 4.4 million bpd to about 75% of prewar levels, according to the International Energy Agency (IEA).
Washington is reportedly considering easing restrictions on some shadow-fleet vessels, allowing legally permitted cargoes to move on previously sanctioned ships. This could reduce freight costs and bottlenecks, further easing supply concerns.
The response to U.S. inventory data underscores the shift in sentiment. The American Petroleum Institute reported crude stocks fell by 11.1 million barrels last week, far exceeding expectations, yet prices still dropped. Haitong Futures noted in a note that the failure to rally on such bullish inventory news showed traders were reluctant to chase crude higher.
Weak demand becomes the bigger story
The deeper pressure on prices is coming from consumption. The IEA now expects global oil demand to decline by an average of 2.6 million barrels per day in 2026, with fourth-quarter demand down 2.5 million bpd from a year earlier. Diesel is expected to account for a quarter of the annual drop as high fuel costs and weaker economic activity weigh on usage.
At the same time, global oil supply jumped 2.5 million bpd in September to 102.3 million bpd, driven largely by recovering Gulf production. This supply recovery is blunting the war premium that might otherwise support prices.
That does not mean Hormuz risk has disappeared. Morgan Stanley has raised its fourth-quarter Dated Brent forecast to $105 because tanker costs remain elevated. Citi sees Brent potentially falling towards $65 by mid-2027 if shipping normalises, while assigning a prolonged-disruption scenario around $120.
This article is for informational purposes only and does not constitute financial advice.
