Oil prices fell toward $88 a barrel on Thursday, ending a six-session rally as markets weighed the possibility of a deal that could reopen the Strait of Hormuz against continued tensions between the United States and Iran.
Brent crude was trading around $88.84 a barrel on August 13, down about 0.15% from the previous session, according to market data. Despite the decline, the benchmark remains nearly 5% higher over the past month and more than 32% above its level a year ago.
The pullback comes as investors assess whether diplomatic efforts could ease the disruption to one of the world’s most important oil shipping routes. US President Donald Trump said Washington had “total control” of the Strait of Hormuz, while negotiations with Tehran remain deadlocked.
The Trump administration is also moving toward tightening economic pressure on Iran as its military campaign has yet to force the government to capitulate. Measures under consideration include broader economic sanctions and a naval blockade intended to restrict Iranian oil exports.
The uncertainty surrounding Hormuz has kept a significant geopolitical risk premium in crude prices, with shipping through the strategic waterway still well below normal levels.
However, concerns about weaker demand and rising inventories are beginning to offset some of the supply-side pressure.
US crude inventories surged by 17.4 million barrels last week, marking their largest weekly increase since early 2023, according to the US Energy Information Administration. The build was driven in part by higher crude imports and lower exports, adding to evidence of increased supply in the US market.
The inventory increase has provided a bearish signal for oil prices at a time when markets are already reassessing global demand prospects.
The International Energy Agency has also lowered its outlook for oil demand this year, with the agency now expecting global consumption to decline by around 1.6 million barrels per day in 2026. The weaker demand outlook reflects the economic impact of the continuing Middle East conflict and higher energy costs.
The conflicting forces have left the oil market caught between the risk of a prolonged supply disruption and expectations of weaker consumption.
Brent is currently around $2.8 below the $91.61 per barrel Q3 forecast in the latest market data, suggesting that prices could remain sensitive to developments around Hormuz and the US-Iran standoff.
A sustained disruption to the strait could push crude prices higher if significant volumes of Middle Eastern oil remain unable to reach international markets. Conversely, any agreement that restores normal shipping could remove part of the geopolitical premium and put further downward pressure on prices.
For now, investors are watching both sides, whether diplomatic efforts can restore flows through Hormuz and whether weakening global demand and rising inventories can continue to restrain prices.
