Oil prices fell on Tuesday following a prediction by the International Energy Agency that "demand destruction will spread" as Middle East conflicts tighten supplies and push average prices higher.
As of 7:09 AM Eastern Time, U.S. crude futures for May delivery dropped 1.86% to $97.24 per barrel. The international benchmark Brent crude for June delivery declined 0.33% to $99.03 per barrel.
According to the IEA, the conflict has resulted in the most severe oil supply disruption in history, along with the largest monthly price surge ever recorded in March.
Reports on Tuesday indicating that peace talks between Washington and Tehran could resume as early as this week, after weekend negotiations failed, also influenced oil prices.
The IEA's latest outlook suggests global oil demand could experience its sharpest contraction since the COVID-19 pandemic.
The agency stated, "Due to the war in Iran upending our global outlook, oil demand this year is projected to fall by 80,000 barrels per day."
"This represents a reduction of 730,000 barrels per day compared to last month’s report, while the projected decline of 1.5 million barrels per day in the second quarter of 2026 would mark the largest drop since the pandemic drastically cut fuel consumption."
"Initially, the most significant cuts in oil usage are expected in the Middle East and Asia-Pacific regions, primarily affecting naphtha, liquefied petroleum gas, and jet fuel. However, as supply shortages and rising prices persist, demand destruction will spread."
U.S. Vice President JD Vance said on Monday that the next steps in U.S.-Iran peace efforts now depend on Tehran, following weekend talks that ended without a breakthrough.
In an interview with Fox News, Vance stated, "Whether we proceed with further dialogue and ultimately reach an agreement, I believe the ball is really in Iran’s court, as we have already proposed many options."
He also noted that a deal could benefit both sides if U.S. conditions—particularly regarding Iran’s nuclear program—are met.
This warning came as the U.S. began a "blockade" of Iranian ports in the Persian Gulf on Monday. President Donald Trump announced on Sunday that the U.S. would block the Strait of Hormuz, marking a significant escalation after a two-week ceasefire.
U.S. Central Command later clarified that the measures apply only to vessels entering or leaving Iranian ports and coastal areas.
According to Vivek Dhar of the Commonwealth Bank of Australia, the blockade "directly endangers" Iran’s oil exports through the Strait of Hormuz, which last month averaged approximately 1.7 million barrels per day.
"As a result, the blockade further tightens physical oil and refined product markets," he said.
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