- Trade tensions eased slightly after the US announced a trade deal with Indonesia.
- Trump has warned that he will impose strict tariffs on Russia within the next 50 days.
- Crude inventories dropped by 3.9 million barrels.
Oil prices recovered from a three-session drop on Thursday as trade tensions eased and data revealed solid oil demand in the US. However, the risk of an escalation in trade tensions might keep prices subdued. At the same time, upbeat US CPI data eased expectations for a Fed rate cut, which in turn hurt prices.
Oil, crude inventories (Source: ICE, EIA)
Trade tensions eased slightly after the US announced a trade deal with Indonesia, soon after one with Vietnam. The new trade deal increased hopes of more deals before the August 1 deadline. At the same time, Trump’s tone on China eased, and he lifted a ban on the sale of AI chips to China.
However, below the surface, trade tensions are still simmering. The European Union is planning to retaliate if there is no trade deal by the new deadline. According to EU officials, despite lengthy talks, the US is resisting a trade deal. If this happens, it will hurt growth and demand for oil.
At the same time, Trump has warned that he will impose strict tariffs on Russia within the next 50 days if it does not end the war in Ukraine. The risk of a global trade war will keep investors on edge. Anything that hurts growth will also hurt demand for oil, pulling prices lower.
Meanwhile, market participants also paid attention to data from the US, which showed solid oil demand last week. Crude inventories dropped by 3.9 million barrels. Meanwhile, economists had estimated a 552,000 barrel drop. However, gasoline demand fell, capping gains.
Elsewhere, data on Tuesday revealed that consumer inflation in the US accelerated to 2.7% annually. The hot number lowered expectations for a Fed rate cut, boosting the dollar and Treasury yields. This, in turn, made oil expensive for foreign buyers and hurt demand. At the same time, high interest rates curb growth, making them bearish for oil.
Meanwhile, the conflict between Trump and Powell continued. The US president has called for the Fed Chair to resign several times since he is not willing to cut interest rates. On Wednesday, reports showed that Trump was planning to fire Powell, which led to a drop in the dollar. However, he denied the reports.
