Meanwhile, India seeks alternatives to replace lost Middle East supply: File Image/Pixabay.

Economic concerns edged out worries over the U.S./Iran peace negotiation impasse on Thursday and caused oil prices to shed 2 percent, after a rise in U.S. crude inventories coincided with reports from key agencies that consumption might actually contract this year.

Prices dipped even further earlier in the session with reports that Iran-backed Houthies targeted a Saudi Aramco facility in Jazan, Saudi Arabia, with drones.

Brent settled down $1.91, or 2.1 percent, at $87.07 per barrel; West Texas Intermediate settled down $2.02, or 2.4 percent, at $81.25 per barrel.

Trading was mainly influenced by news released in the previous session, of oil demand outlooks being revised downward by the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency, the latter of which predicted a 1.6 million barrel per day (bpd) contraction this year.

This was followed by the Energy Information Administration disclosing that U.S. commercial crude inventories made their largest weekly gain since January 2023, as exports slumped; inventories rose by 17.4 million barrels to 424.4 million in the week ended August 7, the highest since June 5.

Meanwhile, Washington and Tehran doubled down on their resolve to gain control over the Strait of Hormuz: the recently appointed head of Iran's Basij paramilitary unit claimed on Thursday that the strait is “under Iran’s control and management.”

For his part, U.S. defense secretary Pete Hegseth fired back that the military would keep a blockade on Iranian ports for as long as needed.

Tim Snyder, chief economist at Matador Economics, remarked, "Conflicting stories continue to drive the narrative as to who controls the Strait of Hormuz and just how many ships are making passage."

In other oil news on Thursday, feasibility studies nearing completion by Indian Strategic Petroleum Reserves Ltd. (ISPRL) could lead to the creation of expanded strategic oil reserves for India: at Bikaner in the state of Rajasthan in northwestern part of the country, and in the caverns of Bina in the central state of Madhya Pradesh.

India has been spurred by the Hormuz closures to search for alternatives to replace lost Middle East supply and to develop additional storage sites to hold commercial and strategic reserves.

Also on Thursday, a report released by WoodMac speculated that oil supply disruptions combined with advancing battery technology could accelerate EV adoption and lead to global oil consumption falling to 99 million bpd by 2040, compared with more than 100 million bpd today.

However, to make this happen the industry would need another $45 billion of metals investment over the next decade, with copper being the biggest challenge.