In the last week, the global oil prices has been affected by higher trade tensions and uncertainties around future levels of supply. The combination of geopolitical issues and oil-producing countries making changes to their levels and trade transitions has led to a decrease in the price of oil in the global markets. According to the DTN Progressive Farmer report, the oil future contracts due on the last business day of the month were negatively impacted.
The latest contracts on NYMEX were also negatively affected
The price of West Texas Intermediate oil fell to $73.08 and, the Brent oil futures were down to $76.76.
Mistrust around tariffs has brought uncertainty in global trade and has no considering which countries would impose tariffs and their effect on oil trade. The U.S. imports more than 4.5 million barrels to Canada and Mexico, which would negatively impact the global oil trade and global energy markets.
The expectation of enhanced oil production by OPEC+ nations intensifies pressure on the scenario. Oil-producing alliances might increase production by 2.2 million barrels per day by November.
Although this might increase their global market share, it might cause an oversupply of oil, especially with reduced demand.
The report elaborates on the precarious position of OPEC+
Oil prices have already begun showing signs of weakness. After reaching a high of $80.04 per barrel in mid-January, WTI crude fell to $60 mark as a support level, and if it is breached, it will likely cause a further drop in prices.
The OPEC+ states:
“If they pump too much too fast, there’s a real chance global supply could outpace demand, and that could cause prices to drop.”
U.S. oil inventories raise uncertainty. The EIA has reported a surprise build, with crude oil stockpiles rising by 1.3M barrels to 443.2M. Gasoline and diesel supplies, too, increased, contrary to expectations that a drawdown would occur.
Refinery utilization, which has gone above 90%, suggests that the end of the spring maintenance season is here and that production will ramp up.
The unexpected build-up in inventories has captured attention and raised the question of demand erosion
The unexpected build has captured the attention of demand erosion, especially in the diesel market. The U.S. has seen lower diesel consumption of late, the lowest since early January. Likely, this is because the wet weather is slowing down farm and freight activities.
Ignoring the decline of demand, though diesel futures still trade over $2.10 a gallon, it is a sign of bullish sentiment.
The trade picture is changing too. for the first time, Canada has shipped more oil by sea to China than to the U.S. This is a reflection of the emerging uncertainty with U.S. trade policy. In April, China was the destination of 299,000 bpd of Canadian oil, and just 286,000 bpd was sent to the U.S., a drastic decline from the 431,000 imported by the U.S. several months prior.
Trade flows are also affected due to the price gap being the narrowest in 4 years
Looking ahead, the market is anticipating more volatility. New production targets may come out of the scheduled OPEC meeting on February 3, while ongoing negotiations and possible tariffs on trade may continue to disrupt oil flows globally.
Retaliatory tariffs and trade negotiations will likely continue to disrupt the flows of oil globally. Finally, the U.S. economy, with inflation and interest rates, is being closely monitored for possible impact on energy demand.
Given this situation, energy planners and consumers generally are advised to remain flexible and informed. Analysts say that how the supply and demand trends develop in the next few weeks will impact energy demand. So many factors, geopolitical and even climatic, are in constant flux, and so the oil market remains highly reactive with uncertain future trajectories.