Brent oil fell nearly 5%, reversing all of Monday’s gains, as reports of a possible second round of US–Iran talks coincided with warnings on weakening demand. Despite the drop, Brent remains up 31% since the start of the war and up 56% year-to-date.
The IEA said the war would wipe out global oil demand growth for the first time since 2020, pointing to demand destruction. The IMF’s baseline scenario assumes a short conflict and prices returning to normal in H2 2026, with Brent averaging USD82 in 2026.
The IMF also set out an adverse scenario with oil at USD100 and weaker global growth if the conflict continues. The article notes it was produced using an AI tool and checked by an editor.
We recall seeing this dynamic back in 2025, when hopes for negotiations caused Brent to drop sharply, only to reverse. Today, with prices hovering around $88 per barrel, the market remains well above the International Monetary Fund’s old baseline forecast of $82 for 2026. This indicates that geopolitical risk is still firmly priced in, outweighing the optimism from last year.
The warnings of demand destruction we heard from the International Energy Agency are now a key factor limiting further price gains. We see this in recent economic figures, with the latest global manufacturing PMI for March 2026 showing only marginal expansion. This creates a difficult tug-of-war, as fears of a slowdown are capping the upside potential from supply disruptions.
Those negotiation hopes have since faded, and our focus has shifted to the supply discipline shown by producers. OPEC+ has maintained its production cuts through the current quarter, effectively putting a floor under the market around the mid-$80s. Recent U.S. Energy Information Administration (EIA) data showing a crude inventory draw of 2.1 million barrels last week reinforces this tight supply picture.
For traders, this suggests a range-bound market defined by a supply floor and a demand ceiling in the coming weeks. Betting on a major breakout in either direction is risky; therefore, selling volatility could be a viable strategy. We might consider options strategies like iron condors to profit from prices remaining within a predictable range.
Looking ahead, we must watch for any signs that this balance is shifting. Pay close attention to weekly U.S. inventory data for surprises that could challenge the supply narrative. Any shift in language from central banks regarding economic growth forecasts will also be critical for determining the direction of demand.
