Oil prices tumble after IEA cuts world demand forecast; U.S.-Iran tensions simmer

Oil prices slid on Thursday, reversing earlier gains after the International Energy Agency lowered its global oil demand forecast for 2026.

At 12:49 ET (17:49 GMT), Brent oil futures for April fell 2.9% to $67.37 a barrel and West Texas Intermediate crude futures dropped 3% to $62.67 a barrel. 

IEA cuts world oil demand forecast for 2026   

World oil demand is likely to rise at a slower pace than previously expected in 2026, according to the latest report by the International Energy Agency, released earlier Thursday.

The group moderately lowered its outlook for annual oil demand growth to 850,000 bpd, with the IEA pointing to the impact of higher crude prices and broader economic uncertainties. China, the world’s largest oil importer, is anticipated to remain the largest contributor to this increase, albeit well below its average growth over the past decade, IEA said.

Despite the expected cooldown in demand, the report suggested that there will be a significant global oil supply surplus in 2026, a trend that has been largely in place since OPEC and its allies began lifting output in April 2025 following a longstanding period of cuts.

U.S.-Iran tensions remain at the fore 

The crude market had previously pushed higher as traders were seen pricing in a greater risk premium for oil from tensions in the Middle East, as reports earlier this week showed Washington considering sending a second aircraft carrier to the region.

While Iran and the U.S. had touted some progress in talks held over the weekend, there still appeared to be no conclusive deal on Tehran’s nuclear activities, leaving markets on edge.

Other reports also showed Washington considering seizing oil tankers carrying Iranian crude, while a meeting between U.S. President Donald Trump and Israeli Prime Minister Benjamin Netanyahu offered few definitive cues. 

Markets were concerned that any military escalation in the Middle East will disrupt production and supplies in the oil-rich region. 

Markets digest strong U.S. payrolls, bumper inventory build 

A batch of U.S. economic prints offered mixed readings to the oil market. 

Stronger-than-expected nonfarm payrolls data for January, released on Wednesday, pointed to unexpected strength in the U.S. economy, driving up hopes that demand in the world’s biggest fuel consumer will remain strong. 

But the data also diminished expectations for lower U.S. interest rates, pushing up the dollar and limiting gains in oil prices.

Crude markets were further pressured by data showing a substantially larger-than-expected 8.5 million barrel build in U.S. oil inventories in the past week.

The print showed some reversal in tight U.S. supplies after extreme cold weather disrupted production across the country in the beginning of the year.

"Domestic production is estimated to have increased by 498k b/d WoW [week on week], recovering from the impact of the recent U.S. winter storm," analysts at ING said, in a note.