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Oil prices slipped slightly on Wednesday, pulling back from the two-week highs achieved in the previous session, as investors waited for clarity on new U.S. tariffs and anticipated rising crude inventories in the United States.
Oil Prices Under Pressure
By 0601 GMT, Brent crude futures fell 15 cents, or 0.2%, to $70 a barrel, while U.S. West Texas Intermediate (WTI) crude dropped 16 cents, or 0.2%, to $68.17 a barrel. The retreat follows a strong rally driven by fears of escalating trade tensions, but the market remains cautious amid uncertainty over tariff developments and growing stockpiles of crude in the U.S.
Tariff Uncertainty Weighs on Market Sentiment
U.S. President Donald Trump’s latest tariff delay provided some hope to major trade partners, including Japan, South Korea, and the European Union, suggesting that trade agreements to ease duties could still be negotiated. However, the delay also left many smaller exporters, such as South Africa, bewildered and companies with no clarity on the path forward.
Trump extended the deadline for trade agreements from July 9 to August 1, declaring the new date as final and stating that “No extensions will be granted.” He also announced new tariffs, including a 50% levy on imported copper and upcoming tariffs on semiconductors and pharmaceuticals, signaling a broadening trade conflict that has rattled global markets.
There is concern that these tariffs could dampen global oil demand, as rising trade tensions often lead to economic slowdown fears, potentially affecting fuel consumption. Despite strong travel demand over the U.S. July 4 holiday weekend, the market remains cautious over the broader economic impact of tariff threats.
U.S. Crude Inventory Build Expected
Adding to the bearish sentiment, data from industry sources showed a potential crude inventory build in the U.S. of around 7.1 million barrels, though stocks of fuel products were reported to be lower. Official data from the U.S. Energy Information Administration (EIA) is expected at 1430 GMT, which could further inform the market about supply dynamics and future price movements.
OPEC+ Output Hike and U.S. Production Cuts
OPEC+ producers are set to approve another significant output increase for September, continuing the unwinding of voluntary production cuts by eight members. Additionally, the United Arab Emirates (UAE) will move to a larger quota as part of the group’s broader efforts to balance global oil supply. This follows a decision from OPEC+ to increase production by 548,000 barrels per day in August.
While the decision from OPEC+ signals confidence in the oil market amid peak seasonal demand, it remains unclear whether the increased output will fully offset declining production in certain regions.
On the longer-term supply side, the U.S. is expected to produce less oil in 2025 than previously forecast, with declining oil prices prompting U.S. producers to slow down drilling activity this year. The U.S. Energy Information Administration’s (EIA) latest monthly report also reflected this trend, indicating potential future pressure on supply.
Market Outlook
While oil prices have been bolstered by seasonal demand and the expectation that OPEC+ will manage production levels carefully, the ongoing uncertainty over U.S. trade policy and the prospect of rising inventories in the U.S. continue to weigh on the market. The interplay of these factors will likely keep prices volatile in the short term, with traders watching for further developments on tariffs, supply adjustments, and global demand trends.
