NEW YORK — Oil prices edged higher on Thursday amid warnings of increased market volatility from the International Energy Agency and a downward revision to global demand forecasts by OPEC, as the ongoing war in Iran continues to disrupt supplies through the Strait of Hormuz.
Benchmark Brent crude futures for July delivery rose 0.34% to $105.99 per barrel, while U.S. West Texas Intermediate futures for June climbed 0.43% to $101.45 per barrel. The uptick comes more than ten weeks after the outbreak of the Iran war in late February, which has led to significant production cuts and shipping disruptions in the Middle East.
OPEC, in its latest monthly update, lowered its estimate for global oil demand growth in 2026 to about 1.2 million barrels per day, down from a previous forecast of 1.4 million barrels per day. The cartel also reported that its production fell by 1.7 million barrels per day in April alone. Since the start of the conflict, OPEC output has declined by more than 30%, equivalent to 9.7 million barrels per day.
This report marks the final OPEC update to include data from the United Arab Emirates, which officially exited the organization on May 1. The departure of the UAE, a key Gulf producer, underscores the shifting alliances within the oil-producing nations amid escalating regional tensions.
The International Energy Agency, in its analysis released on Wednesday, emphasized the war's toll on global supplies. "More than ten weeks after the war in the Middle East began, mounting supply losses from the Strait of Hormuz are depleting global oil inventories at a record pace," the IEA stated. The agency noted that more than 14 million barrels per day of supply have been cut, resulting in an overall loss exceeding a billion barrels from Gulf producers.
As peak summer demand season approaches in the Northern Hemisphere, the IEA warned that greater price volatility is likely. The Strait of Hormuz, through which roughly 20% of the world's oil flows, remains partially closed due to the conflict, exacerbating shortages and pushing prices upward.
Analysts at ING highlighted the uncertainty surrounding the duration of these elevated prices. "The duration of elevated fuel prices remains a subject of intense discussion and is closely tied to ongoing geopolitical developments surrounding the closure of the Strait of Hormuz, as well as the potential damage to oil and gas infrastructure in the Middle East from further conflict," the firm said in a research note.
The war, which began in late February, has seen Iranian forces clash with a coalition including U.S. and allied interests, leading to naval blockades and attacks on key oil facilities. Reports indicate that several major tankers have been targeted, further complicating exports from the region. Global inventories have been drawn down rapidly to meet demand, with the IEA describing the pace as unprecedented.
OPEC's revised demand outlook reflects concerns over economic slowdowns in major consuming nations, potentially dampened by the higher energy costs stemming from the supply disruptions. While the cartel maintains that long-term demand will remain robust, the immediate outlook points to tighter markets in the short term.
In the U.S., where gasoline prices have surged in recent weeks, consumers are feeling the pinch at the pump. According to the Energy Information Administration, average retail prices for regular unleaded have climbed above $4.50 per gallon in many states, a level not seen since the early days of the pandemic.
Traders are also keeping a close eye on diplomatic efforts to resolve the conflict. U.S. President Donald Trump is scheduled to meet with Chinese President Xi Jinping in the coming days, a summit that could influence oil market dynamics. China, as the world's largest importer of oil transiting the Hormuz Strait, has a vested interest in stabilizing the region.
Former U.S. Commerce Secretary Carlos Gutierrez, speaking on CNBC's "Squawk Box Asia" on Wednesday, emphasized Beijing's stake in ending the war. "President Xi wants this war to be over as much as President Trump does," Gutierrez said, noting that China relies heavily on the uninterrupted flow of Middle Eastern crude.
The meeting between Trump and Xi, expected to take place in an undisclosed location, will likely address not only trade relations but also energy security. Sources close to the administration indicate that discussions on pressuring Iran to reopen the strait could feature prominently on the agenda.
Broader implications of the supply crunch extend beyond energy prices. Airlines, shipping companies, and manufacturing sectors worldwide are reporting higher operational costs, which could feed into inflationary pressures. The Federal Reserve has already cited the oil shock as a factor in its recent decision to hold interest rates steady.
Looking ahead, market participants anticipate continued choppiness in oil prices until there is clarity on the Hormuz situation. OPEC's next moves, including potential production adjustments post-UAE exit, will also be scrutinized. For now, the combination of geopolitical risks and seasonal demand factors suggests that volatility will persist, keeping investors on edge.
As the world grapples with these challenges, the IEA's call for diversified supply routes and accelerated renewable energy adoption underscores the vulnerabilities exposed by the current crisis. Yet, with summer travel ramping up, the immediate focus remains on securing enough oil to avoid deeper economic fallout.