Oil Prices Slide Amid U.S.-EU Trade Tensions and Rising Supply

Oil prices saw a slight decline on Tuesday as growing concerns over the escalating trade war between the U.S. and the European Union weighed on market sentiment, potentially curbing future fuel demand growth and affecting global economic activity.

As of 0658 GMT, Brent crude futures fell by 28 cents, or 0.40%, to $68.93 per barrel. Meanwhile, U.S. West Texas Intermediate (WTI) crude was down 37 cents, or 0.55%, trading at $66.83 a barrel. Both oil benchmarks saw modest declines in the previous session as well.

Trade War Concerns Weighing on Oil Prices

The looming U.S.-EU trade war is exacerbating concerns about a slowdown in global economic growth, which, in turn, could negatively impact fuel demand. The U.S. has already threatened a 30% tariff on EU imports, which would take effect on August 1 unless a trade deal is reached. With these tariffs on the horizon, fears have mounted that higher tariffs will reduce economic activity, particularly for major oil-consuming nations like the U.S. and the EU.

While supply concerns had previously supported oil prices, the situation has largely stabilized as major producers have ramped up output and the ceasefire between Israel and Iran on June 24 ended the conflict in the region. Despite this, trade tensions continue to offset the supply-side support, leaving investors cautious about future demand prospects.

U.S. Dollar Weakness Offers Some Support

One factor that has been providing some support for oil prices is a weaker U.S. dollar, making crude oil less expensive for buyers using other currencies. However, this benefit was outweighed by the trade concerns, keeping oil prices subdued. Tony Sycamore, an analyst at IG Markets, noted that while the dollar’s softness helped sustain prices, trade war fears were a more dominant force impacting sentiment.

Rising Supply from Major Producers

The market is also adjusting to the fact that rising oil supply is entering the market. As the Organization of the Petroleum Exporting Countries (OPEC) and its allies unwind production cuts, more crude is becoming available. For example, Saudi Arabia’s crude oil exports in May hit a three-month high, according to data released by the Joint Organizations Data Initiative. The increase in supply from these major producers, particularly as OPEC+ begins to raise output, is contributing to a bearish sentiment in the market.

Overall, while supply-side dynamics such as higher output and a softening of geopolitical tensions in the Middle East have provided some relief, trade-related uncertainties remain a significant downside risk for oil prices. As the August 1 tariff deadline nears and the potential for an escalating trade war between the U.S. and the EU looms, investors will closely monitor how these factors influence both demand growth and global economic stability moving forward. For now, oil prices remain range-bound, weighed down by a mix of trade concerns and rising supply.