Oil prices experienced a slight decline on Tuesday, driven by apprehensions that the escalating trade tensions between significant crude consumers, namely the U.S. and the European Union, may hinder fuel demand growth by dampening economic activity, thereby impacting investor sentiment.
Brent crude futures experienced a decline of 24 cents, representing a decrease of 0.35%, reaching $68.97 per barrel, following a settlement that was 0.1% lower on Monday. The price of U.S. West Texas Intermediate crude stands at $66.99 per barrel, reflecting a decrease of 21 cents, or 0.31%, subsequent to a 0.2% decline in the preceding session. The August WTI contract is set to expire on Tuesday, while the more actively traded September contract has decreased by 23 cents, or 0.35%, settling at $65.72 per barrel.
Nevertheless, the oil market has faced challenges in establishing a clear trajectory since the ceasefire on June 24, which concluded the conflict between Israel and Iran, alleviating fears regarding significant supply disruptions in the crucial Middle East production area.
Since then, Brent has fluctuated within a range of $5.19, while WTI has operated within a range of $5.65. This movement can be attributed to the alleviation of supply concerns, as major producers have increased output. Concurrently, investor sentiment has shifted towards apprehension regarding the global economy, particularly in light of changes in U.S. trade policy. Nonetheless, a depreciated U.S. dollar has offered support for crude, as purchasers utilizing alternative currencies are incurring lower costs. Prices have declined “as trade war concerns offset the support by a softer (U.S. dollar),” noted IG market analyst Tony Sycamore. Sycamore highlighted the potential for an escalation in the trade dispute between the U.S. and the EU concerning tariffs.
The European Union is considering a wider array of potential counter-measures in response to the United States, as the likelihood of reaching a satisfactory trade agreement with Washington diminishes, as reported by EU diplomats. The United States has indicated the possibility of implementing a 30% tariff on imports from the European Union starting August 1, contingent upon the successful negotiation of a deal.
There are also indications that increasing supply has emerged in the market as the Organization of the Petroleum Exporting Countries and their allies reverse output reductions. In May, Saudi Arabia’s crude oil exports experienced an increase, reaching their peak level in three months, as indicated by data from the Joint Organizations Data Initiative (JODI) released on Monday.