Oil Slips as Demand Fears Grow and Talk of Fresh Iran Negotiations Resurfaces

CNBC, Reuters, Axios, AlJazeera, the Wall Street Journal, and Forbes contributed to this report.

Oil prices pulled back Tuesday, caught between tightening supply and a growing sense that demand might not keep up.

On one side, there’s disruption – the biggest the market has ever seen, according to the International Energy Agency. On the other, a warning that high prices could start choking off consumption.

That warning is getting louder. The IEA now expects global oil demand to actually shrink this year, forecasting a drop of about 80,000 barrels per day – a sharp reversal from earlier expectations for solid growth. If it holds, it would mark the first annual decline since the pandemic.

Prices reacted quickly. US crude slid more than 3% to around $95 a barrel, while Brent dipped closer to $97.

The message from the agency is blunt: demand destruction is spreading. It started in regions hit hardest by supply shocks – the Middle East and parts of Asia – especially in fuels like jet fuel and petrochemicals. Now it’s expected to ripple outward as higher prices stick.

At the same time, supply remains under pressure. The conflict has choked flows through the Strait of Hormuz, a critical artery for global energy. The disruption has already wiped out millions of barrels per day from the market, sending shockwaves through prices.

The US has added another layer by launching a naval blockade targeting Iranian shipping. President Donald Trump framed it as a way to squeeze Tehran, though the move stops short of blocking all traffic through the strait.

That’s where the story gets complicated. Even as tensions rise, there are fresh hints diplomacy isn’t dead.

Vice President JD Vance said the next step now rests with Iran after weekend talks fell apart without a deal. There’s growing chatter that negotiations could restart within days.

Markets are trying to price both scenarios at once – tighter supply if the conflict escalates, softer demand if high prices drag on the global economy.

The IEA sketched out just how fragile things are. A projected drop of 1.5 million barrels per day in the second quarter would be the steepest contraction since COVID-era lockdowns crushed fuel use.

For now, oil is stuck in that tension. Less supply. Less demand. And no clear signal on which side wins.