Oil prices have steadied near their lowest levels of the year, following concerns about geopolitical instability and potential tariffs on energy. Brent crude remained below $75 a barrel, after a 2.1% drop on Wednesday wiped out all gains for the year to date. Meanwhile, West Texas Intermediate (WTI) hovered around $71.
The looming trade war between the U.S. and China is a key factor impacting the global energy market, with China poised to impose retaliatory tariffs on U.S. goods starting Monday. This escalation in trade tensions threatens to dampen global economic growth. Furthermore, U.S. President Donald Trump’s controversial proposal to take control of Gaza has also drawn widespread condemnation, adding to the uncertainty surrounding the oil market.
Since Trump’s inauguration, investors have been pulling funds out of the crude and fuel markets, contributing to the ongoing price decline. Despite this, concerns persist over the possibility of tighter supply due to sanctions on Iran and Russia, as well as delayed restrictions on crude exports from Canada and Mexico. These factors have helped bolster prices for some Middle Eastern oil grades, with Saudi Arabia raising the price of its flagship crude to Asia by the largest margin in over two years.
In the U.S., commercial crude stockpiles have seen their largest increase in almost a year, partly due to higher imports from Canada in advance of upcoming tariffs. While inventory levels typically rise at this time of year, they remain below seasonal averages.
Signs of a softening physical market are also emerging. The spread between the two closest Brent contracts has narrowed to its smallest margin this year, with backwardation—a market structure that reflects supply shortages—shrinking to just 53 cents a barrel, down from around $1 at the end of January. Similarly, an options bet on WTI suggests that the oil curve could shift into a bearish contango pattern by next year, indicating weaker demand.
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