Oil Falls Nearly 3% as Demand Outlook Weakens and U.S. Crude Inventories Surge

Oil prices fell sharply on Thursday as a surprise surge in U.S. crude inventories and weaker global demand forecasts outweighed continuing concerns about disrupted supply from the Middle East. U.S. West Texas Intermediate crude was down $2.34, or 2.81%, at $80.93 a barrel by 1:24 p.m. GMT, while Brent crude was down $2.20, or 2.47%, at $86.78, according to Reuters market data.

The pullback interrupted a run of gains that had lifted both benchmarks over several sessions. The immediate pressure came from two sides of the market. U.S. storage data showed a much larger crude build than analysts had expected, while both the International Energy Agency and OPEC reduced their assessments of 2026 oil demand growth. Those developments added a demand and inventory concern to a market that is still dealing with unusually tight supply conditions around the Strait of Hormuz.

The result is an oil market sending mixed signals. Near-term consumption expectations have weakened and U.S. crude stocks jumped, but global inventories remain depleted and a large volume of Gulf production is still unavailable. That combination helps explain why prices fell hard on Thursday without erasing the broader supply-risk premium that has shaped trading through much of the year.

U.S. crude stocks jump by 17.4 million barrels

The most immediate bearish signal came from the U.S. Energy Information Administration. In its Weekly Petroleum Status Report for the week ended August 7, the agency said commercial crude inventories excluding the Strategic Petroleum Reserve rose by 17.4 million barrels to 424.4 million barrels. That was a 4.3% increase from the prior week, when stocks stood at 407.0 million barrels.

The build was large enough to attract immediate attention, but the headline number needs context. Even after the increase, commercial crude inventories were about 2% below the five-year average for this time of year. Total commercial petroleum inventories rose by 15.7 million barrels, while gasoline stocks fell by 1.0 million barrels and distillate inventories edged down by about 100,000 barrels. The report therefore did not show a broad accumulation across every major petroleum category.

Trade flows played an important role in the crude build. EIA said U.S. crude imports averaged 7.3 million barrels per day, up 1.14 million barrels per day from the previous week. Reuters, citing the same agency data, reported that crude exports fell to 3.06 million barrels per day, their lowest level since November 2025, while net crude imports rose by 1.77 million barrels per day to the highest level since June 2025. That combination left considerably more crude inside the United States during the reporting week.

The consumption side of the EIA report was softer in aggregate. Total products supplied over the latest four-week period averaged 20.7 million barrels per day, down 2.1% from the same period a year earlier. Motor gasoline product supplied averaged 9.0 million barrels per day, down 0.5% year over year, although distillate product supplied was up 1.9% and jet fuel supplied was up 3.8%. The figures point to a mixed demand picture rather than a uniform drop across fuels.

The size of the crude build was also unusual relative to market expectations. A Reuters poll had pointed to a 1.4 million-barrel draw. Reuters reported that some market participants viewed the increase as potentially distorted by unusually low exports and a jump in imports, which means the next few weekly reports will matter in determining whether the build was a one-off flow effect or the start of a broader inventory trend.

IEA and OPEC both turn less optimistic on 2026 demand

The inventory shock arrived alongside fresh downgrades to the global demand outlook. In its August Oil Market Report, the IEA forecast that world oil demand will decline by 1.6 million barrels per day in 2026. That is 510,000 barrels per day weaker than its estimate in the previous month.

The agency linked the deterioration to elevated fuel prices and the continuing closure of the Strait of Hormuz, which has disrupted supply chains and reduced product availability. It expects the year-on-year demand contraction to ease from 4.9 million barrels per day in the second quarter to 2.8 million barrels per day in the third quarter, before demand returns to growth of about 580,000 barrels per day in the fourth quarter. For 2027, the IEA projects demand growth of 2.4 million barrels per day.

OPEC also revised its 2026 view lower, although its underlying assessment remains much more optimistic. The producer group now expects global oil demand to grow by about 0.6 million barrels per day this year, a slight downward revision from July. It expects non-OECD demand to provide most of that growth, while OECD consumption declines slightly. OPEC forecasts a much stronger increase of about 2.2 million barrels per day in 2027.

The difference between the two organizations is important. Both moved their 2026 forecasts in a weaker direction, but the IEA expects a substantial annual contraction while OPEC still expects demand to increase. That divergence means Thursday’s price decline cannot be reduced to a single agreed view that the world suddenly has too much oil. The forecasts differ sharply on the level of consumption even though both point to softer conditions than they did a month ago.

Supply disruptions still keep the market tight

The bearish demand and inventory signals are landing in a market where physical supply remains constrained. The IEA said global oil supply rose by 2.4 million barrels per day in July to 101.5 million barrels per day, but remained 6.3 million barrels per day below its level a year earlier. About 8.3 million barrels per day of Gulf output was still shut in, and the agency cut its third-quarter supply estimate by 1.7 million barrels per day from the previous month’s report.

For 2026 as a whole, the IEA now expects global supply to fall by 4.3 million barrels per day. It also estimates a third-quarter market deficit of 1.8 million barrels per day, more than double its previous estimate of around 800,000 barrels per day. Observed global oil inventories fell by 69 million barrels in July and were down by 410 million barrels from the start of the war, according to the agency.

Shipping through the Strait of Hormuz remains central to that tightness. Reuters reported that vessel crossings excluding container ships fell to five on Wednesday, the lowest level in three weeks, as U.S. and Iranian officials continued to make competing claims over control of the waterway. Russia’s seaborne oil-product exports also dropped sharply in July after Ukrainian drone attacks contributed to unplanned refinery maintenance, adding another source of supply uncertainty.

The EIA’s August Short-Term Energy Outlook reflects the same tension. The agency assumes oil flows through Hormuz will remain severely constrained through August and begin increasing only gradually in September. It expects Brent spot prices to average about $85 a barrel in the third quarter before easing to around $78 in the fourth quarter as trade routes normalize and shut-in production returns.

Thursday’s decline therefore reflects a shift in the balance of concerns rather than the disappearance of supply risk. A 17.4 million-barrel U.S. crude build and softer demand forecasts gave traders fresh reasons to mark prices lower, but inventories outside the United States remain tight and the main Middle East transit route is still operating far below normal volumes. The next EIA petroleum report, scheduled for August 19, will provide the first test of whether the latest U.S. crude build was an isolated swing in imports and exports or the beginning of a more persistent accumulation.