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Oil pricesdropped onThursdayfollowing a 3 percent rise in the previous sessionas investors express caution regarding the potential reintroduction of higher US tariffs, which could lead to a decline in fuel demand, alongside expectations of major producers increasing output.
Brent crude futuresLCOc1decreased by 53 cents, equivalent to a drop of 0.77 percent, bringing the price to $68.58 per barrel at 0536 GMT. Meanwhile, US West Texas Intermediate crude CLc1fell by 51 cents, or 0.76 percent, settling at $66.94 per barrel.
Both contracts saw a surge to their highest levels in a week on Wednesday as Iran halted its cooperation with the U.N. nuclear watchdog, raising fears that the ongoing negotiations over the Middle Eastern country’s nuclear ambitions could escalate into military conflict. Additionally, the US and Vietnam reached an initial trade agreement.
Nevertheless, uncertainty surrounding US trade policy is growing, especially with the 90-day deferment on raising tariffs set to expire on July 9, unless new trade agreements are finalized with major trading partners like the European Union and Japan.
Moreover, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, collectively referred to as OPEC+, are likely to propose an increase in production by 411,000 barrels per day (bpd) during their upcoming meeting this weekend.
Given the uncertainty surrounding these developments, along with the approaching July Fourth Independence Day holiday in the US, analysts from ING noted that “market participants may prefer to minimize risk before the extended US weekend.”
Compounding the negative outlook, a private sector survey released on Thursday indicated that service activity in China, the largest oil importer globally, grew at its slowest rate in nine months during Junedue to weakening demand and a drop in new export orders.
Concerns about demand
An unexpected increase in US crude inventories has also underscored worries regarding demand from the world’s leading crude consumer.
The US Energy Information Administration reported on Wednesday that domestic crude stockpiles rose by 3.8 million barrels to 419 million barrels last week. Analysts surveyed by Reuters had anticipated a decrease of 1.8 million barrels.
Gasoline demandon a weekly basis declinedto 8.6 million barrels per day, raising concerns about consumption levels during the peak summer driving season in the US. EIA/S
Market participants are keeping an eye on the release of the crucial US monthly employment report on Thursday, which could influence expectations regarding the extent and timing of potential interest rate cuts by the Federal Reserve later this year, analysts suggested.
Lower interest rates might stimulate economic activity, consequently increasing oil demand.
A private payrolls report released on Wednesday indicated a contraction for the first time in two years, though analysts cautioned against assuming a direct correlation with government data.