- The latest US trade deal that eased trade war concerns was with Japan.
- EU officials said on Wednesday that they were nearing a trade deal with the US.
- US crude inventories fell by 3.2 million barrels last week.
Oil prices rose on Thursday as the demand outlook improved with the signing of more trade deals between the US and its trading partners. At the same time, the US reported a larger-than-expected decline in crude inventories, indicating robust demand.
The latest US trade deal that eased trade war concerns was with Japan. It came as a surprise since talks between the two countries had taken a long time with no clear progress. The signing of a deal boosted risk appetite and raised hopes of more deals before the August 1 deadline. According to the agreement, Japan will remain with a 15% reciprocal tariff on its goods. This is fairer than the 25% Trump had threatened.
Furthermore, EU officials said on Wednesday that they were nearing a trade deal with the US. In this deal, the EU would also pay a 15% reciprocal tariff. The hope of more trade deals has lowered the likelihood of a global trade war next month. However, it has not completely eliminated it.
Market participants are still concerned about the US-China talks, which have not yet yielded a final deal. Moreover, other countries, such as Brazil, are preparing to retaliate if tariffs increase next month.
US crude inventories (Source: Bloomberg)
Elsewhere, data on Wednesday revealed that US crude inventories fell by 3.2 million barrels last week. Meanwhile, economists had expected a 1.6 million barrel drop. The jump indicated solid demand and boosted oil prices.
Meanwhile, oil got support from uncertainty about the Russia-Ukraine talks. The two nations met on Wednesday to discuss the exchange of prisoners. However, there is still little progress on ceasefire talks. The war is raging on, meaning there is always a risk of escalation. This risk will only start to drop when the leaders of the two countries meet and begin discussing peace.
Fed rate cut expectations continued declining as the US economy showed continued resilience. Data on Thursday revealed that unemployment claims unexpectedly fell to 217,000 last week. This was the second consecutive week of declines, showing a drop in unemployment. Market participants have been pushing back the timing for the next rate cut due to upbeat economic data. Currently, bets show that the Fed might cut in October. A strong economy is bullish for oil, but high rates curb demand.
