Oil slips below $88 despite Iran risk: has crude’s $90 rally already cracked?

Brent crude slipped below $88 a barrel in Asian trading on Thursday as a huge US inventory build and weaker demand forecasts challenged its geopolitical premium.

Brent fell 1.3% to $87.86 early in the session, while WTI dropped 1.4% to $82.13.

The reversal came two days after Brent returned to $90 as traders grew less confident that Washington and Tehran were close to an agreement capable of restoring normal traffic through the Strait of Hormuz.

Iran risk has not disappeared. What has changed is the other side of the equation: inventories are rising in the US while global demand expectations are deteriorating.

Huge US inventory build challenges the rally

US crude inventories jumped 17.4 million barrels in the week ended August 7 to 424.4 million barrels, according to the Energy Information Administration. Analysts had expected a decline of about 600,000 barrels.

Higher imports and weaker exports drove much of the build. Imports rose by 1.1 million barrels a day to 7.3 million, while exports fell by 627,000 barrels a day to 3.1 million.

Antonio Di Giacomo, senior market analyst at XS.com, told The Wall Street Journal that continued inventory accumulation, particularly alongside weaker fuel consumption, could reduce the ability of geopolitical risks to push crude prices higher.

The International Energy Agency added another warning. It now expects global oil demand to contract by 1.6 million barrels a day in 2026, a steeper fall than it projected last month.

That creates an awkward feedback loop. Iran can lift oil prices, but higher prices themselves can weaken the demand needed to sustain the rally.

Iran still makes betting against oil dangerous

The drop below $88 does not mean the market believes the Hormuz crisis is close to resolution.

Brent climbed to around $90 earlier this week as doubts grew over the timing and terms of any agreement.

Soojin Kim of MUFG said uncertainty around a Hormuz deal was likely to keep a “substantial geopolitical risk premium” embedded in crude prices.

Physical supply remains tight.

The IEA expects global oil supply to fall by 4.3 million barrels a day in 2026, substantially more than the projected demand contraction.

Global inventories have dropped below 7.9 billion barrels for the first time since April 2025, while Gulf production remains well below pre-war levels.

$90 may be easier to reach than to hold

The bigger question is whether Brent can remain above $90 without a fresh supply shock.

Oxford Economics expects crude to average around $85 over the remainder of 2026 before falling towards $65 by the end of 2027.

Ben May, its director of global macro research, said the firm had raised its forecasts because of renewed US-Iran hostilities.

That outlook captures the tension facing traders.

Every move higher increases pressure on consumers, transport companies and industrial demand.

OPEC has also cut its 2026 demand-growth forecast to 580,000 barrels a day, adding to concerns that expensive crude is restraining consumption.