Oil prices retreated on Tuesday after climbing nearly 2 percent in the previous session, as investors evaluated new developments regarding U.S. tariffs and a higher-than-expected output increase from OPEC+ for August. Brent crude futures fell by 22 cents, or 0.3 percent, settling at $69.36 a barrel by 03:30 GMT (currently trading above $69.25). Meanwhile, U.S. West Texas Intermediate crude dropped 27 cents, or 0.4 percent, to $67.66 a barrel (currently trading above $67.6).
On Monday, U.S. President Donald Trump began informing trade partners, including major suppliers like South Korea and Japan, as well as smaller U.S. exporters such as Serbia, Thailand, and Tunisia, that sharply higher U.S. tariffs would commence on August 1. However, he later clarified that this deadline was not 100 percent firm.
Trump’s tariffs have created uncertainty in the market, raising concerns about their potential negative effects on the global economy and, consequently, on oil demand. Still, there are indications that current demand remains robust, particularly in the U.S., the world’s largest oil consumer, which has supported prices. A record 72.2 million Americans were projected to travel more than 50 miles (80 km) for Fourth of July vacations, according to data from travel group AAA released last week.
Investors maintain bullish outlook
Investors maintained a bullish outlook heading into the holiday period, as evidenced by data from the U.S. Commodity Futures Trading Commission, which revealed that money managers increased their net-long positions in crude oil contracts during the week leading up to July 1. “Prompt demand remains healthy on the back of seasonal factors. The question remains if forward demand will maintain to absorb the larger-than-expected supply from OPEC+,” stated Emril Jamil, a senior analyst at LSEG Oil Research.
Further signs of heightened demand were apparent in India, the world’s third-largest oil consumer, with government data indicating that fuel consumption in June was 1.9 percent higher than the previous year. On Saturday, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, agreed to boost production by 548,000 barrels per day in August, surpassing the 411,000-bpd hikes implemented in the prior three months. This decision effectively reverses nearly all of the 2.2 million-bpd voluntary cuts enacted by the group.
They are expected to approve a further increase of around 550,000 bpd for September when they convene on August 3, according to five sources familiar with the matter, which would completely unwind all prior cuts. However, actual output increases have thus far been smaller than announced levels, with most supply coming from Saudi Arabia, analysts noted.
Oil prices dip after OPEC+ output increase
Oil prices experienced a dip on Monday after OPEC+ surprised the markets by increasing output more than anticipated for August. Additionally, uncertainty surrounding U.S. tariffs and their potential implications for global economic growth influenced demand expectations. Brent crude futures fell by 47 cents, or 0.69 percent, to $67.83 a barrel by 03:27 GMT. Conversely, U.S. West Texas Intermediate crude was priced at $66.05, down $0.95, or 1.42 percent.
“The increased production clearly represents a more aggressive competition for market share and some tolerance for the resulting decline in price and revenue,” reported Reuters, citing Tim Evans of Evans Energy. The August increase marks a significant rise from the monthly increases of 411,000 bpd that OPEC+ had approved for May, June, and July, as well as 138,000 bpd in April.
This decision will reinstate nearly 80 percent of the 2.2 million bpd voluntary cuts from eight OPEC producers back into the market, as highlighted by RBC Capital analysts led by Helima Croft. However, the actual output increase has been smaller than initially planned, and the majority of the supply has been sourced from Saudi Arabia, they added.
Saudi Arabia’s price increase
Saudi Arabia raised the August price for its flagship Arab Light crude to a four-month high for Asia. Goldman analysts anticipate that OPEC+ will announce a final increase of 550,000 bpd for September during the next meeting on August 3. Oil prices also faced pressure as U.S. officials indicated a delay on tariffs but did not provide specific details regarding the change. President Donald Trump stated on Sunday that the U.S. is close to finalizing several trade agreements in the coming days and will notify other countries of higher tariff rates by July 9, with those rates scheduled to take effect on August 1.
In April, Trump announced a 10 percent base tariff rate on most countries, along with higher “reciprocal” rates that could reach up to 50 percent, initially set for this Wednesday. However, Trump also mentioned that levies might range from “maybe 60 percent or 70 percent tariffs to 10 percent and 20 percent,” further complicating the situation.
