Oil prices dipped on Tuesday from a two-week high, impacted by concerns about rising supplies, despite earlier optimism linked to the pause in the U.S.-China trade war, as both nations temporarily reduced tariffs. Brent crude futures fell by 22 cents, or 0.3 percent, settling at $64.74 per barrel by 02:48 GMT (currently trading at $64.83). U.S. West Texas Intermediate (WTI) crude dropped by 18 cents, or 0.3 percent, to $61.77 (currently trading at $61.86).
Both benchmarks finished approximately 1.5 percent higher on Monday, achieving their steepest settlements since April 28. These gains emerged during a tumultuous period for global oil markets.
Trade agreements and market reactions
The U.S. and China reached an agreement to cut steep tariffs for at least 90 days, which propelled Wall Street stocks, the U.S. dollar, and crude prices significantly higher on Monday. “While a thawing in trade tensions between China and the U.S. is helpful, there’s still plenty of uncertainty over what happens in 90 days. This uncertainty could continue to generate headwinds for oil demand,” Reuters reported, citing ING analysts stated in an email to clients. However, the fundamental issues that precipitated the dispute remain unresolved, including the U.S. trade deficit with China and U.S. President Donald Trump’s call for increased action from Beijing to address the U.S. fentanyl crisis.
Read more: Crude oil prices rise to $64.21 as optimistic U.S.-China trade talks ease demand concerns
Supply concerns
Markets were closely monitoring rising supplies, which have become a significant factor contributing to the recent weakness in oil prices. Analysts emphasize that while demand remains a key concern for the oil market, the increases in supply from OPEC+ are likely to ensure that the market remains well supplied throughout the remainder of the year.
ING analysts highlighted that the extent of market supply will largely depend on whether OPEC+ follows through with their plans for aggressive supply increases in May and June. This adherence to supply strategies will be critical, as any deviations could further influence pricing dynamics. Additionally, the balance between supply and demand will be crucial in determining future oil price movements, especially given the current geopolitical landscape and economic conditions affecting global consumption.
OPEC production increases
The Organization of the Petroleum Exporting Countries (OPEC) has significantly increased oil output more than previously anticipated since April, with projections for May indicating an expected rise of 411,000 barrels per day. This ramp-up reflects OPEC’s response to market dynamics and aims to meet growing global demand.
At the same time, perspectives on crude oil inventories are mixed among analysts, adding an element of uncertainty to the market. A recent Reuters poll suggested that U.S. crude oil stocks likely decreased last week, indicating a potential tightening of supply. However, Macquarie energy strategist Walt Chancellor offers a contrasting view, predicting a rise in U.S. crude inventories by 7.6 million barrels. This divergence in inventory forecasts highlights the complexities facing the oil market and underscores the need for continued monitoring of supply trends and their implications for pricing.
