Why Oil Prices Crashed on Thursday and the Forces That Could Determine Where They Go Next

The IEA attributed the sharper contraction to restricted fuel supplies and higher prices resulting from the conflict, which has weighed on demand . The two agencies are now more than 2 million barrels per day apart in their 2026 demand outlooks, reflecting deep uncertainty .

2. Massive U.S. Crude Inventory Surge

The U.S. Energy Information Administration reported that commercial crude inventories posted their largest weekly increase in 3.5 years — rising by 17.4 million barrels to 424.4 million barrels in the week ended August 7 . This was a stark surprise versus market expectations for a 1.4 million barrel draw .

The build was driven primarily by a sharp slump in U.S. crude exports, which fell to 3.06 million bpd — the lowest since November 2025 . After the API had flagged a 9.07 million barrel build the day before, the much larger EIA figure intensified the selloff .

"The magnitude of the increase is remarkable, as week-to-week changes are generally in single digits," CME Group noted in its analysis of the report . UBS analyst Giovanni Staunovo said the build is "a headwind for prices," though he added the downside should be limited as long as Strait of Hormuz flows remain depressed .

The Key Forces Keeping a Floor Under Prices

Despite the sharp selloff, traders are not abandoning the market. Two upside risks continue to provide price support:

Strait of Hormuz Blockade Deadlock

Talks to reopen the strategic waterway remain at an impasse, with no progress on a U.S.-Iran interim deal that was agreed in June . A senior Iranian source said on Wednesday that there had been no progress in defining a timeframe to implement the deal . The deadlock is keeping shipping disruptions and supply constraints in place, providing a price floor .

Continued Attacks on Middle East Shipping

Ongoing attacks on vessels in the Gulf and Bab al-Mandab region, tied to the broader Iran conflict, continue to threaten actual supply flows . ING analysts noted "little in the way of fresh developments between the US and Iran, with both sides remaining in a deadlock" while a large drone attack on Russia's Novorossiysk port added to broader supply concerns beyond the Middle East .

Where the Market Stands Now

The oil market is caught between two powerful and opposing forces:

• Downward pressure: Weakening demand forecasts, particularly the IEA's call for the first annual consumption decline since the pandemic, combined with swelling U.S. inventories.
• Upward support: The tangible loss of supply from the Strait of Hormuz closure and the risk of escalation if talks collapse entirely.

Demand-side fears have dominated this week's trading, but the balance remains fragile. Analysts note that any signs of progress in reopening Hormuz could trigger a much steeper drop, while a failure of talks or new attacks could quickly reverse the current weakness . PVM analyst John Evans summed it up by saying the combination of growing U.S. inventories and weaker demand estimates is "limiting the market's upside" even as conflict risks persist .