Oil Prices Decline Amid Trade Concerns
Oil prices dropped for a second consecutive session, pressured by a surprising build in US crude inventories and ongoing global trade tensions. Brent crude slipped toward $70 a barrel, while West Texas Intermediate hovered near $66, extending Tuesday’s 0.7% loss.
The American Petroleum Institute (API) reported a rise of 4.6 million barrels in US oil stockpiles last week. However, there was a drawdown at the crucial Cushing, Oklahoma hub, where West Texas Intermediate is delivered. Official inventory data from the Energy Information Administration is expected later today.
Oil Faces Downward Pressure from Trump’s Trade War
The Trump administration’s aggressive trade policies continue to inject uncertainty into financial markets. This week, investors are closely watching the Federal Reserve’s rate decision and any signals from Chair Jerome Powell regarding the US economic outlook.
President Donald Trump’s escalating trade war has sparked a risk-off mood in markets, pushing down equities and adding to the bearish sentiment around oil. Traders are concerned that higher tariffs and slowed trade could weaken energy demand globally.
OPEC+ Output Plans Add to Oil Market Concerns
Oil’s recent rally has lost steam as OPEC and its allies prepare to increase production. The anticipated boost in supply comes at a time when macroeconomic risks are rising and oil consumption, particularly in China, remains soft.
“OPEC’s plans to add barrels to the market while demand weakens are a bad combination for oil,” said Warren Patterson, head of commodities strategy at ING in Singapore. “The rebound in oil has stalled as geopolitical and macro concerns override short-term supply threats.”
Bearish Inventory Data Fuels Market Anxiety
Beyond trade and supply issues, oil markets are reacting to the surprise build in US crude inventories. The API’s reported 4.6 million barrel increase exceeded analyst expectations and raised fresh concerns about oversupply in the second quarter.
This comes just weeks after major investment banks, including Goldman Sachs, cut oil price forecasts due to slowing demand and rising OPEC+ production. The risk of oversupply looms, especially if economic data in the US and China continues to disappoint.
Geopolitical Risks Offer Limited Oil Support
While geopolitical concerns briefly supported oil earlier this week, their impact has since faded. President Trump continues to pressure Iran to rein in Yemen’s Houthi militants. The Houthis have targeted Red Sea shipping lanes, which has disrupted some global oil flows.
At the same time, Russian President Vladimir Putin rejected Trump’s proposal for a ceasefire in Ukraine. However, he agreed to reduce attacks on Ukraine’s energy infrastructure. Markets have so far responded cautiously to these developments, choosing to focus more on trade-related and macroeconomic risks.
Market Sentiment Remains Fragile for Oil Traders
Crude remains well below its January peak, and sentiment among oil traders is becoming increasingly fragile. The combination of higher inventories, a strong dollar, potential interest rate hikes, and lower Chinese demand suggests continued volatility in the oil market.
Analysts expect oil prices to remain range-bound unless there is a major shift in supply dynamics or a resolution in global trade tensions. For now, oil remains vulnerable to the broader risk-off environment and macroeconomic headwinds.