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Brent oil has fallen 20% from its late-March peak despite still-low Hormuz flows.
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Goldman says weaker demand is helping drive oil's recent decline.
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EVs, public transit, and softer fuel use are challenging oil's old playbook.
The oil markets spent months worrying about supply disruptions in the Middle East.
Instead, Brent crude oil futures have fallen about 20% from their late-March peak, even though flows through the Strait of Hormuz remain low.
The move reflects more than easing supply fears, with demand-related factors also weighing on the market, according to Goldman Sachs.
"Actual end-use oil demand may have fallen more in response to higher prices than expected," wrote Goldman's analysts in a note published on Sunday.
The bank pointed to two forces behind the decline: destocking and weaker consumption.
Earlier this year, fears that the war with Iran could escalate boosted both physical and financial demand for oil as businesses built inventories and investors bet on higher prices.
As markets grew more optimistic about a potential deal with Iran, those trends reversed.
Brent crude oil futures were 3.1% higher at $93.90 per barrel at 3:08 a.m. ET on Monday.
But Goldman said higher prices are hurting demand more than expected, particularly for jet fuel and petrochemical products.
Road fuel demand has also shown signs of weakness in China and parts of Europe.
In China, retail sales volume for gasoline and related products fell more than 20% in April from a year earlier. Goldman said the decline was directionally consistent with weaker oil sales reported by refiners, slightly lower highway traffic, and growth in subway ridership, rail freight, and EV charging.
Western Europe also showed signs of weakness. Retail sales reports indicated an average 8% year-over-year decline in retail car-fuel sales volumes in April.
"Structurally, the rise of EVs and urban transportation systems in China, and work-from-home technology has increased switching opportunities," wrote Goldman's analysts.
Heightened public attention to oil prices, coupled with the perception that the largest oil supply shock ever is likely to be temporary, may also be weighing on demand, the bank said.
Consumers may be delaying travel, while companies postpone petrochemical production rather than absorb higher costs.
Goldman still sees risks to oil prices as two-sided. While weaker demand could put further pressure on crude, more persistent Middle East supply losses remain a significant upside risk.
The bank forecasts Brent crude to average $90 a barrel in the fourth quarter of 2026.
Meanwhile, Brent could trade about $10 a barrel below Goldman's forecast if some of the demand weakness in China and Western Europe persists.
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