Oil prices declined on Tuesday amid rising concerns that the escalating trade conflict between major crude consumers, the U.S. and the European Union, could hinder fuel demand growth by stifling economic activity, which has negatively impacted investor sentiment.
Brent crude futures saw a decrease of 52 cents, or 0.75 per cent, settling at $68.69 a barrel by 7:30 WAT (currently trading above $68.60). Meanwhile, U.S. West Texas Intermediate crude was priced at $66.69 a barrel, down 51 cents, or 0.76 per cent (currently trading above $65.35). Both benchmarks experienced a slight decline on Monday.
The August WTI contract is set to expire on Tuesday, with the more actively traded September contract dropping 54 cents, or 0.82 per cent, to $65.41 a barrel.
Supply concerns have largely been alleviated by major producers raising output, and a ceasefire on June 24 ended the conflict between Israel and Iran. However, investors are increasingly worried about the global economy amid U.S. trade policy changes.
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A weaker U.S. dollar has provided some backing for crude as buyers using other currencies are paying relatively less.
“Broad demand concerns continue to simmer amid escalating global trade tensions, especially as markets eye the latest tariff threats between major economies and Trump’s potential announcements ahead of the August 1 deadline,” Priyanka Sachdeva, senior market analyst at Phillip Nova told Reuters.
According to her, “Investors are also eyeing the ripple effects of fresh U.S. sanctions on Russian crude”.
Prices have slipped “as trade war concerns offset the support by a softer (U.S. dollar),” IG market analyst Tony Sycamore wrote in a note.
Sycamore also pointed to the possibility of an escalation in the trade dispute between the U.S. and the EU over tariffs.
The EU is exploring a broader set of possible counter-measures against the United States as prospects for an acceptable trade agreement with Washington fade, Reuters quoted some EU diplomats. The U.S. has threatened to impose a 30% tariff on EU imports on August 1 if a deal is not reached.
Some signs rising oil supply has entered the market as the Organization of the Petroleum Exporting Countries and its allies unwind output cuts.
OPEC is pursuing a long-term strategy to increase its market share and is unwinding production cuts. Its approach is also aimed at restoring group cohesion among its members and capitalises on the resilience of oil demand, even as some forecasts suggest a peak in consumption.
