Crude oil prices are drifting toward a second consecutive weekly loss as fading geopolitical tensions between the United States and Iran strip away part of the risk premium that had buoyed prices earlier this year. Brent crude recently traded near $67 per barrel, while West Texas Intermediate hovered around $62–$63, both down from recent highs despite relatively stable trading at the start of the week. The retreat underscores a shift in market psychology—from supply disruption fears to renewed focus on inventories and forward supply growth.

Geopolitical Relief Eases Risk Premium

Earlier price gains were driven in part by speculation that escalating U.S.-Iran tensions could disrupt flows through key export corridors. However, signals that Washington may allow more time for diplomatic negotiations over Iran’s nuclear program have cooled near-term escalation fears.

Markets had embedded a modest geopolitical premium amid concerns about potential supply interruptions in the Persian Gulf. As that risk recedes, traders are unwinding some bullish positions. For energy markets, particularly in import-dependent economies such as Israel and across Europe, reduced geopolitical tension typically translates into softer spot prices and lower hedging urgency in the short term.

Still, geopolitical risk has not disappeared entirely. Oil remains sensitive to diplomatic rhetoric and military developments, meaning that any abrupt shift in tone could quickly restore volatility.

Inventory Builds and Production Growth Weigh on Sentiment

Beyond geopolitics, fundamental supply data are increasingly shaping price direction. The U.S. Energy Information Administration reported a build in crude inventories of 8.53 million barrels, alongside a 498,000 barrel-per-day increase in production. While markets initially downplayed the figures, the combination reinforces the perception of ample supply.

The International Energy Agency added further downward pressure this week by trimming its demand growth forecast to 850,000 barrels per day, down from 930,000 barrels per day in its previous outlook. More importantly, the IEA projects a supply surplus in 2026, with global production expected to rise by 2.4 million barrels per day to 108.6 million barrels daily.

For investors, especially those with exposure to energy equities or commodity-linked ETFs in U.S. and Israeli portfolios, these signals complicate the narrative. Strong supply growth paired with moderating demand expectations reduces the likelihood of sustained price spikes absent a geopolitical shock.

OPEC’s Optimism vs. IEA’s Caution

Contrasting sharply with the IEA’s caution, OPEC maintained its demand growth projections at 1.38 million barrels per day for 2026 and 1.34 million barrels per day for 2027. At the same time, OPEC production declined by 439,000 barrels per day last month, largely due to disruptions in Kazakhstan.

This divergence highlights a broader analytical split in the market. OPEC’s steady demand outlook suggests confidence in emerging-market consumption and global economic resilience, while the IEA’s revision reflects concerns over slowing industrial activity and energy transition dynamics.

For traders, the tug-of-war between bullish producer narratives and more conservative independent forecasts creates a rangebound environment. Prices may remain capped near current levels unless either demand accelerates meaningfully or supply is curtailed more aggressively.

Looking ahead, market participants will closely monitor diplomatic developments with Iran, updated inventory data, and macroeconomic indicators that shape fuel consumption. With 2026 surplus projections looming, oil markets appear increasingly driven by structural supply dynamics rather than headline-driven risk alone.