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Oil prices experienced a slight dip on Thursday, following a 3% gain in the previous session, as market sentiment was dampened by growing concerns over potential U.S. tariff reinstatement and anticipated production hikes by major oil producers.
Oil Prices Fall Amid U.S. Tariff Concerns
Brent crude futures fell 53 cents, or 0.77%, to $68.58 a barrel by 0536 GMT, while U.S. West Texas Intermediate (WTI) crude declined 51 cents, or 0.76%, to $66.94 a barrel. Despite these declines, both contracts rose to their highest levels in a week on Wednesday following news that Iran suspended cooperation with the U.N. nuclear watchdog, heightening fears of a potential escalation in the Middle East due to the nuclear dispute. This, along with a preliminary trade deal between the U.S. and Vietnam, had initially supported the market.
However, uncertainty remains around U.S. trade policies, particularly as the 90-day pause on the implementation of higher tariffs is set to end on July 9, with no new trade agreements finalized with key partners such as the European Union and Japan. The looming deadline has added to the volatility in the oil market.
OPEC+ Output Hike Weighs on Prices
Another factor influencing oil prices is the anticipated decision by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia (OPEC+), to raise production by 411,000 barrels per day (bpd) during their upcoming meeting this weekend. This expected output increase has contributed to bearish sentiment, as it could further exacerbate the global supply glut.
Uncertainty in Market Ahead of July 4 Holiday
As traders await the weekend’s OPEC+ meeting, there is increased caution in the market, with many market participants likely hesitant to take on excessive risk ahead of the long U.S. Independence Day weekend. Analysts from ING noted that market participants are likely to remain cautious during this period due to the combination of geopolitical uncertainties, trade policy risks, and the looming supply increase.
Chinese Service Activity and U.S. Inventory Build Add to Demand Worries
Adding to the negative sentiment, a private-sector survey released on Thursday showed that service activity in China, the world’s largest oil importer, expanded at the slowest pace in nine months during June. The report highlighted weakening demand and a decline in new export orders, signaling slower economic growth in the region.
A surprise increase in U.S. crude inventories further compounded concerns, as the U.S. Energy Information Administration (EIA) reported that domestic crude stockpiles rose by 3.8 million barrels to 419 million barrels last week. Analysts had expected a drawdown of 1.8 million barrels. Gasoline demand also weakened, falling to 8.6 million barrels per day, prompting worries about consumption during the peak U.S. summer driving season.
Focus Shifts to U.S. Employment Report
As the market grapples with these mixed signals, all eyes are now on the U.S. monthly employment report, set to be released on Thursday. Analysts suggest that this report will have a significant impact on shaping expectations for future interest rate cuts by the Federal Reserve in the second half of the year. The labor market data will be closely scrutinized to assess the strength of the U.S. economy and determine the Fed’s next move on monetary policy.
In summary, while oil prices saw a modest dip on Thursday, concerns over trade tariffs, output hikes from OPEC+, and the weakening demand outlook have put downward pressure on the market. Investors are also keenly watching for further economic indicators, including the U.S. jobs report, to gauge the health of global demand and the potential for further policy easing.
