Brent crude futures edged up 30 cents, or 0.4%, to $68.74 a barrel by 0813 GMT, while U.S. West Texas Intermediate (WTI) crude stood at $65.43 a barrel, also up 27 cents, or 0.4%. While prices briefly surpassed the $69 mark earlier in the day, they pared most of those gains as the session progressed.
Trade Optimism Provides Support
The recent U.S.-European Union trade framework pact, which establishes a 15% import tariff on most EU goods and includes a commitment from the EU to purchase $750 billion of U.S. energy in the coming years, is a key factor lending support to global financial markets and, by extension, oil prices. According to IG markets analyst Tony Sycamore, this deal, coupled with a potential extension of the U.S.-China tariff pause – with senior officials set to meet in Stockholm today ahead of an August 12 deadline – is fostering a more optimistic trade environment. Reduced trade tensions can spur economic activity, potentially increasing energy demand and providing upward pressure on crude prices.
Headwinds: Dollar Strength and Indian Demand
Despite the trade optimism, a stronger U.S. dollar acted as a counterbalance, dampening oil's upward momentum. A robust dollar makes dollar-denominated commodities like oil more expensive for holders of other currencies, which can curb demand. PVM analyst Tamas Varga noted that with the U.S.-EU deal removing one layer of uncertainty, focus shifted to these other market dynamics, leading oil to retreat from its earlier highs.
Adding to the complexity is the recent trend of lower oil imports by India. As a major global oil consumer, shifts in India's demand can significantly impact market sentiment and pricing. While historical data shows India's crude oil imports generally increasing, any short-term dips can signal reduced demand, putting downward pressure on prices.
Supply-Side Stability and Geopolitical Risks
On the supply front, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) are holding steady. Sources within the group indicate that an OPEC+ panel meeting today is unlikely to deviate from existing plans to gradually increase oil output. ING analysts anticipate that OPEC+ will complete the full return of 2.2 million barrels per day (bpd) of voluntary supply cuts by the end of September, indicating a stable, albeit cautious, approach to market balancing.
Meanwhile, Venezuela's state-run oil company PDVSA is preparing to resume operations and oil exports, contingent on U.S. President Trump reinstating authorizations for its partners. A return of Venezuelan crude to the market, though potentially gradual, could add to global supply.
However, geopolitical risks continue to cast a shadow. In the Middle East, Yemen's Houthi rebels announced on Sunday a "fourth phase" of military operations against Israel over the Gaza conflict, vowing to target ships of companies that conduct business with Israeli ports, regardless of nationality. This escalation in the Red Sea region remains a critical concern for shipping lanes and could pose a threat to oil flows, potentially introducing supply disruptions and adding a risk premium to prices. The ongoing attacks have already significantly impacted shipping routes, causing many vessels to re-route around the Cape of Good Hope, leading to increased costs and transit times.
As the week progresses, the interplay of these various factors – evolving trade relations, currency movements, demand signals from key consumers, OPEC+ decisions, and regional geopolitical tensions – will continue to shape the trajectory of global oil markets.