Oil Markets Brace for Turbulence: Tariff Threats and Swelling Inventories

Oil prices are navigating a complex landscape, influenced by U.S. crude inventories and the specter of intensified trade conflicts. Following recent gains, both Brent and West Texas Intermediate (WTI) crude futures experienced minor retreats, stabilizing near $70 and $68 per barrel, respectively.

Recent industry data from the American Petroleum Institute revealed a notable increase in U.S. crude stockpiles last week, an estimated 7.1 million barrels. Should government figures corroborate this, it would mark the largest weekly surge in inventories since early this year, pointing to a potential build-up in supply. 

A significant factor influencing market sentiment is the ongoing U.S. trade policy. President Trump has reiterated his intent to proceed with tariff implementations, including new levies on copper imports and anticipated duties on semiconductors and pharmaceuticals. This expansion of trade barriers has created considerable market apprehension, with analysts noting the continuous impact of ""tariff headlines"" on global trade and economic growth. In a related development, the Energy Information Administration (EIA) has adjusted its projection for U.S. crude production growth this year, reducing it by about 50,000 barrels per day to 160,000 barrels daily, attributing this slowdown to lower oil prices affecting drilling operations. The number of oil rigs in the U.S.A remains near a four-year low.

The oil market is expected to shift into a surplus after the peak summer demand season, partly due to accelerated production increases by OPEC+ nations. The alliance recently approved a significant boost in output for August, totaling over 540,000 barrels per day, as part of their strategy to unwind voluntary reductions and regain market share. While geopolitical tensions have recently provided some temporary upward pressure on prices, the primary focus for the market has returned to global trade conditions and the effectiveness of OPEC+ supply management.

From a technical perspective, crude prices have largely consolidated within a narrow trading range since the de-escalation of Middle East tensions. WTI prices, oscillating between their 50-day and 200-day moving averages, suggest that a significant price movement could be on the horizon. However, concerns regarding sluggish global economic growth, potentially exacerbated by tariff disputes, could constrain demand and influence future price trajectories.