WTI falls as market shifts focus on tariffs and global inventories
The WTI prompt-month contract fell $1.11 to settle at $67.34/Bbl on the week. This week, the market turned its focus to the second round of tariff announcements, inventories, and geopolitics.
President Trump has announced a new slate of tariffs set to take effect on August 1. The plan includes a 30% tariff on Mexico, Canada, and the EU. Several Asian countries are getting hit with a 25% tariff including South Korea and Japan. China, the US’s largest trading partner is noticeably absent after successful trade talks. However, the plan includes a 50% tariff rate on Brazil, our second biggest trading partner.
New tariffs risk a trade war that could negatively impact global demand growth. In their latest IEA July Oil Market Report, the agency projected that world oil consumption will grow by just 700 MBbl/d in 2025, a 20 MBbl/d downward revision from last month’s report. The largest quarterly reductions were to countries potentially affected most by the trade war including China, Japan, Korea, the US and Mexico. On the supply side, the IEA revised its 2025 forecast upward by 240 MBbl/d with global supply now expected to increase by 2.15 MMBbl/d in 2025 to reach 105.1 MMBbl/d.
Analysts at Morgan Stanley say global inventories have increased at a rapid rate in recent months. However, most of the inventory build has occurred in the Asia-Pacific, with only 10% of the build occurring in OECD countries, which has insulated key price hubs. Once summer driving season ends, demand could weaken while supply remains strong. US gasoline demand is already showing signs of weakness, with the four-week average of product supplied falling below 9 MMBBl/d for the first time since early June while stockpiles jumped. As summer demand underwhelms, concerns are growing that consumption will not provide the usual seasonal lift to prices.
Geopolitical risks provided a lift during the week as Israel launched attacks on the Syrian capital of Damascus. Drone attacks in northern Iraq also caused Kurdistan to pause oil operations resulting in 200 MBbl/d of lost production. Also, the EU announced a new sanctions package on Russia for its war in the Ukraine. The sanctions include a lower cap on Russian oil, and restrictions on Russian petroleum refined in third countries.
Despite uncertainty surrounding geopolitical risks and tariffs, volatility remains low with the forward curve signaling tighter conditions in the near term. Analysts Florence Schmit at Robobank says that tightness in the diesel market has been keeping crude prices elevated recently. AEGIS maintains a neutral view with downside bias as softer demand or inventory builds pose a potential risk to crude markets.