Oil pares gains after soft US economic data
The WTI prompt-month contract fell $1.93 to settle at $67.33/Bbl on the week. Despite Friday’s drop, the WTI front-month futures rose over $2 on the week. Oil surged on the reintroduction of geopolitical risk that threatens Russian barrels however the market cooled on Friday on weak US economic data.
Monday morning, President Trump announced that he would be reducing the deadline for Russia to reach an agreement with Ukraine from 60 day to “10-12 days.” The President reiterated that he would enact economic penalties, including secondary sanctions, if Russia did not reach a ceasefire in the coming days. Trump also expressed ire for India’s large purchases of Russian crude, threatening a possible still-undefined penalty for the large purchases. According to Rystad Energy, OPEC+ countries could potentially offset any shortfalls of Russian barrels stemming from further pressure from Western nations.
OPEC+ is set to meet on August 3 to discuss production quota increases for the month of September. The market expects the group to announce another hike of ~550 MBbl/d completing the full 2.5 MMBbl/d unwind a full year ahead of schedule. Before the latest sanctions and tariff threats, global crude markets were expected to be in surplus. According to the latest IEA forecast, the global oil market is expected to move deeper into surplus, with supply exceeding demand by over 3 MMBbl/d in Q1 2026.
Demand side issues continue as countries rush to make or renegotiate trade terms with the US. There was a flurry of activity this week with large trading partners announcing trade deals with the US. The EU and South Korea will now face a 15% levy on imported goods to the US. Along with the Trump’s disapproval over purchases of Russian barrels, the country of India has been tagged with a 25% tariff rate. Conversations with major trading partners, Brazil, Canada, and Mexico, continues.
Oil prices sank as weaker-than-expected US economic data softened the economy’s demand outlook. US jobs growth cooled sharply over the past three months, while factory activity contracted in July at the fastest rate in nine months, in a sign that the economy might be declining amid increased trade uncertainty.
The curve shifted higher this week on possible disruptions to Russian barrels but cooled after weak US data raised demand concerns. As OPEC+ is expected to bring back more than half a million barrels in September and demand growth concerns continue, AEGIS maintains a neutral view on prices.
Crude Oil Factors
Geopolitical Risk Premium. (Bullish, Mostly Priced In) President Trump has shortened the deadline for Russia to reach a ceasefire deal with Ukraine, down to "10-12 days" from the original 60 day period. The President reiterated economic penalties, including secondary sanctions, if an agreement was not reached.
Speculator Positioning (Bearish, Priced In) Speculator's net-length in WTI futures fell, as of the latest CFTC data, with non-commercial traders holding a net-long position of 209k contracts. Positioning has risen steadily since April, when it fell to the lowest level seen in several years.
OPEC Market Share War. (Bearish, Surprise) OPEC raised crude production by 360,000 bpd in June, its largest increase in four months, as Saudi Arabia led a push to reclaim market share despite weakening demand and rising global supplies. The Saudis, along with the UAE and Kuwait, ramped up both production and exports, signaling a strategic shift away from price defense and toward volume gains.
Oil/Product Inventories. (Bullish, Priced In) Crude inventories in the US remain low, although stocks have risen this year in-line with seasonal trends. Crude data is usually on a several-month lag. According to the July IEA report, OECD inventories have started to move higher. Global inventories are expected to increase throughout the year. Diesel inventories rose, but they’re still at the lowest seasonal level since 1996. According to Goldman Sachs, diesel-refining margins are likely to stay above long-run averages.
OPEC+ Quotas. (Bullish, Priced In) On June 2, OPEC+ announced its extension of 3.66 MMBbl/d cuts through December 2025. Additionally, the 2.2 MMBbl/d voluntary cuts from eight member countries will continue into Q3 2024 but will start to be reversed in October at a rate of 0.18 MMBbl/d per month. OPEC+ members agreed on September 5 to delay a planned gradual 2.2 MMBbl/d supply hike by two months, shifting the start to December. The group will add 0.19 MMBbl/d in December and 0.21 MMBbl/d from January onwards, with an option to adjust or pause these hikes depending on market conditions. The cartel also reaffirmed its compensation cuts of 0.2 MMBbl/d per month through November 2025, as members such as Iraq, Russia, and Kazakhstan have struggled to meet their original production quotas.
AEGIS notes that the global crude market would quickly build inventories without OPEC's support in reducing supply.
OPEC Unwind. (Bearish, Mostly Priced in) OPEC+ is set to meet on August 3, with the maket expecting another large production quota hike of ~550 MBbl/d completing the full 2.5 MMBbl/d unwind a full year ahead of schedule.
China Demand. (Bearish, Priced In) China's oil demand has been severely affected by a combination of economic weakness and electrification trends within the country. Continued weakness in China's real estate sector has led to slower economic growth. The Chinese government has responded with interest rate cuts and multiple stimulus packages. Electrification trends have also dampened oil demand growth, with the buildout of high-speed rail and LNG-powered trucks and busses impacting diesel demand. China is one of the most prolific adopters of electric vehicles, impacting gasoline demand. Some estimates show demand for transportation fuels in China peaking, but oil demand from China's petrochemical sector should continue for the next few decades.
USD (Bullish, Priced In) The US dollar index surged to multi-year highs toward the end of 2024. The dollar has since erased all post-election gains despite tariff fears being realized. Typically, a stronger dollar will have a negative impact on crude prices, while a weakening dollar will support prices.
Ukraine-Russia Resolution. (Bearish, Surprise) Russia has intensified drone strikes in an effort to pressure Ukraine into accepting its terms for a resolution. Meanwhile, the European Union is proposing a new sanctions package, including a ban on the Nord Stream pipelines and a reduction of the oil price cap to $45/Bbl, to increase pressure on Moscow. While the prospect of a resolution is bearish for crude, additional sanctions could provide offsetting price support.
Trade War. (Bearish, Mostly Priced In) The EU and South Korea are both set to pay a 15% levy on imported good to the US, a similar deal to Japan. Brazil has been granted a seven day extension after the President said the major trading partner would pay a substantial 50% tariff rate. Trump said it would be difficult to reach a deal after Prime Minister Mark Carney anonunced that Canada would recognize the Palestinian state.
Projected Oversupply. (Bearish, Mostly Surprise) The IEA continues to anticipate an oversupplied market in 2025, although the level of oversupply has been moderated a bit in its latest outlook. Around the end of 2024, the IEA was anticipating about 1 MMbbl/d of oversupply, which has now fallen to about 0.4 MMBbl/d.
Trump/Iran/Venezuela. (Bullish, Surprise) The US government has let Chevron resume oil operations in Venezuela. Before losing their license to operate, the supermajor was producing 240 MBbl/d in Venezuela with most of the production going to refineries in the Gulf Coast.
Russian Supply. (Bullish, Surprise) Trump hes threatened secondary sanctions on any countries purchasing barrels from Russia if they do not reach a ceasefire deal with Ukraine in the coming days. He also expressed disapproval of India's large Russian crude purchases, stating that the country could face an unknown penalty for its actions.
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