Oil prices climbed by approximately 1% on Thursday, supported by positive sentiments surrounding U.S. trade negotiations and a larger-than-expected drop in U.S. crude inventories. Brent crude futures saw an increase of 64 cents, reaching $69.15 per barrel, while U.S. West Texas Intermediate (WTI) crude futures rose by 68 cents, touching $65.93 per barrel by 06:30 GMT.
The rally in oil prices comes after cautious market activity on Wednesday, which saw little change in the benchmarks as traders kept a close watch on U.S.-European Union trade talks, spurred by President Donald Trump’s recent tariff deal with Japan. This agreement resulted in the reduction of auto import duties and provided Japan with relief from new tariffs, in exchange for a $550 billion package of U.S.-bound investment and loans.
Hiroyuki Kikukawa, chief strategist of Nissan Securities Investment, noted that the buying momentum was driven by “optimism that progress in tariff negotiations with the U.S. would help avoid a worst-case scenario.” However, he added, “Uncertainty over U.S.-China trade talks and peace negotiations between Ukraine and Russia is limiting further gains,” forecasting that WTI will likely trade between $60 and $70.
In a significant development, two European diplomats revealed that the EU and U.S. were progressing towards a trade deal, which could include a 15% U.S. baseline tariff on EU goods, with possible exemptions. This development could set the stage for another major trade agreement, following the Japan deal.
Crude Inventory Decline Bolsters Market Sentiment
U.S. Energy Information Administration (EIA) data showed that U.S. crude inventories fell by 3.2 million barrels last week to 419 million barrels, surpassing analyst expectations for a 1.6 million-barrel decline. Gasoline stocks also decreased by 1.7 million barrels, dropping to 231.1 million barrels, nearly double the anticipated draw of 908,000 barrels. Conversely, distillate stockpiles, which include diesel and heating oil, saw an increase of 2.9 million barrels, reaching 109.9 million barrels—still near their lowest seasonal level since 1996, according to analysts at ANZ.
“This suggests demand over the northern hemisphere summer has been relatively strong,” said ANZ in a note.
Geopolitical Tensions Keep Markets Cautious
Despite positive economic data, geopolitical tensions remain a significant factor in oil market dynamics. Peace talks between Russia and Ukraine, held in Istanbul on Wednesday, were focused on potential prisoner swaps, though the two sides remain far apart on ceasefire terms. Additionally, new regulations temporarily halted foreign oil tankers from loading at Russia’s primary Black Sea ports, disrupting exports from Kazakhstan through a consortium partially owned by U.S. energy majors.
In the U.S., energy secretary Jennifer Granholm stated that the country would consider sanctioning Russian oil as part of efforts to end the war in Ukraine. Meanwhile, the EU announced its 18th sanctions package against Russia, which includes lowering the price cap for Russian crude.
Outlook and Market Risks
The combination of trade negotiations, inventory data, and geopolitical risks has created a delicate balance in the oil market. While optimism around U.S. trade negotiations provides short-term support for prices, concerns regarding the ongoing conflict in Ukraine and unresolved issues in U.S.-China trade talks continue to exert downward pressure on market sentiment.
For now, oil prices remain susceptible to shifting global dynamics, and analysts will be closely monitoring any further developments in both the trade talks and the geopolitical landscape.
