The closure of the Strait of Hormuz has persisted for months, yet international oil prices have fallen rather than risen. A recent Goldman Sachs research report sheds light on the logic behind this counterintuitive phenomenon: an unexpected collapse in demand is offsetting the upward pressure from the supply shock.
According to Daan Struyven, a Goldman Sachs commodity strategist, in the latest weekly oil market report, the spot futures price for Brent crude has fallen by 22% from its late-March peak, despite the continued severe restriction of crude flows through the Strait of Hormuz.
He attributes this divergence to two major demand-side drivers: a reversal of earlier stockpiling demand and an unexpectedly sharp contraction in actual end-user demand. Concurrently, high inventory buffers, the rapid release of Strategic Petroleum Reserves, and stronger-than-expected supply from the Americas have collectively acted to suppress prices.
Goldman Sachs currently maintains its forecast for Brent crude at $90 per barrel for the fourth quarter of 2026. However, it explicitly notes that price risks are two-sided—there is significant upside potential if Middle Eastern supply disruptions last longer than expected, but there is also a downside risk of approximately $10 per barrel if demand weakens further.
Ebbing Stockpiling Demand and a Market Sentiment Reversal
The report points out that the high level of market panic over escalating tensions in March had previously spurred a wave of financial and physical restocking demand, leading to a sharp surge in retail oil product sales in several economies.
However, as market expectations have grown more optimistic about the prospects for a prolonged ceasefire, this logic has fundamentally reversed. Investor long positions have continued to decline, and physical destocking processes have accelerated. The market is already pricing in the eventual reopening of the Strait of Hormuz.
This means the "panic restocking" premium that previously supported oil prices is systematically eroding, constituting the first major downward pressure on prices.
More Severe Demand Destruction Than Expected, with Aviation and Petrochemicals Hit Hardest
The second pressure is more structurally significant: the contraction in actual end-user demand has exceeded prior expectations, with several institutions having downgraded their demand forecasts for early 2026.
Demand destruction has been most pronounced for the highest-priced products. Goldman Sachs's real-time global jet fuel demand tracker shows demand in May was 6% below trend, equivalent to about 400,000 barrels per day. Contraction in the petrochemical feedstock sector is also notable—operating rates for ethylene plants in Asia have dropped by 14 percentage points since February, while demand for naphtha and LPG in India fell by nearly 150,000 barrels per day year-on-year in April.
Road fuel demand presents a mixed picture: demand in the US and India remains relatively robust, whereas retail automotive fuel sales in Western Europe averaged an 8% year-on-year decline in April, with the steepest drop reaching 600,000 barrels per day.
Demand Proves More Price-Sensitive, Structural Factors Amplify Transmission
The reason demand's response to oil prices has exceeded expectations this time can be linked to two underlying drivers.
The first is structural change: the proliferation of electric vehicles, the expansion of urban public transport systems, and the maturation of remote work technology have significantly enhanced the energy substitution capabilities of both consumers and businesses, reducing rigid dependence on traditional oil products.
The second is an expectation management effect: the widespread market perception that this supply shock is "likely temporary" has prompted sectors like aviation and petrochemical production to opt for postponement rather than cancellation. Additionally, work-from-home policies in parts of Asia have further suppressed travel demand. The combination of these factors has amplified the price signal's dampening effect on demand.
Ample Strategic Reserves Provide a Buffer, But Their Return Could Spark a Reversal
In a recent report, Rory Green, an analyst at research firm TS Lombard, also explored the deeper reasons why oil prices have failed to breach $200 per barrel, focusing on the buffering role of global strategic reserves.
Green notes that the existence of large-scale commercial refined product inventories has allowed industrial production to continue operating despite a significant reduction in crude imports, creating a relatively mild form of demand substitution. He also emphasizes that the large-scale, rapid advancement of the energy transition and the ongoing accumulation of strategic crude reserves have given relevant economies a far greater buffer capacity to handle this oil price shock compared to 2022—when crude imports surged following the outbreak of the Russia-Ukraine conflict.
However, Green also highlights a reversal risk that cannot be ignored: once the Strait of Hormuz reopens, the need to rebuild large-scale strategic reserves will become a core national security imperative, and a rapid recovery in industrial capacity utilization will drive a rebound in demand. At that point, the forces that have been suppressing global oil prices could quickly transform into new catalysts for price increases, effectively putting a floor under the downside for global benchmark crude prices.