Oil Prices Dip as U.S.-EU Trade War Looms

Oil prices drifted lower early Tuesday in Asian markets, weighed down by escalating trade tensions between the world’s largest economies and mounting signs of rising crude supply. The looming threat of an economic slowdown with the potential to curb fuel demand growth is driving bearish sentiment.

At the time of writing, Brent crude was down 0.71% at $68.72 a barrel, while U.S. West Texas Intermediate (WTI) crude had slipped 0.60% to $66.80 a barrel.

The declines follow modest losses on Monday, with both benchmarks struggling for direction amid mixed signals from the global economy and oil markets.

The August WTI contract, set to expire today, was trading at a discount to the more active September contract, which dipped 52 cents to $65.43 a barrel, reflecting near-term softness as traders weigh market fundamentals.

Trade War Anxiety Dampens Demand Outlook

Investor concerns are centered on the brewing trade dispute between the United States and the European Union. EU diplomats signaled that Brussels is preparing a wider range of retaliatory measures after Washington threatened to impose a 30% tariff on EU imports from August 1 unless a deal is struck.

Market analysts warn that this escalation, following a broader global trend of rising protectionism, could weaken economic growth and erode oil demand prospects.

“Prices have slipped as trade war concerns offset the support provided by a softer U.S. dollar,” said Tony Sycamore, market analyst at IG. A weaker dollar typically boosts crude demand by making oil cheaper for holders of other currencies.

Supply Risks Abate as Middle East Tensions Ease

Oil markets have remained largely range-bound since the June 24 ceasefire between Israel and Iran, which calmed fears of a supply disruption in the Middle East—a critical producing region.

Since then, Brent has traded in a narrow $5.19 range and WTI in a $5.65 range, reflecting a market that appears to be in balance despite headlines.

Supply-side pressures have also emerged, as OPEC+ unwinds production cuts amid signs of recovering supply.

Data released Monday showed that Saudi Arabia’s crude exports in May climbed to their highest level in three months, according to the Joint Organizations Data Initiative (JODI).

The increase reinforces expectations that more barrels are flowing back into the market just as economic headwinds gather strength.

Outlook

With U.S.-EU trade tensions intensifying, oil prices are likely to remain capped despite some support from currency factors. Investors will be closely watching next week’s economic data releases for signs of demand resilience, while also monitoring OPEC+ supply dynamics.

By Charles Kennedy for Oilprice.com

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