Oil Market’s Focus Shifts to Demand as Trump Reignites Trade War

The shift in focus is complicating the cartel’s communications with the market, forcing traders to parse both overt supply messages and second-order demand signals every time the group makes a statement.

“Supply and demand balances have been challenging to track lately,” said Mark Malek, chief investment officer at Siebert. “You have all kinds of factors that we never had traditionally,” including a burgeoning gray market and a fast-evolving news cycle.

“You don’t see the clear patterns that you used to see in crude,” he added.

In the near term, the peak driving season in North America and healthy refiner margins are propping up consumption, while OPEC members have been hard-pressed to ramp up output to meet their 411,000-barrel production goal for July.

“When you really look at exports compared to imports, you see a relatively balanced market,” said Samantha Hartke, Americas head of market analysis at Vortexa. Still, “any indications of supply or demand weakness can easily tip the scale one way or another.”

But expectations of demand deterioration are spreading. The International Energy Agency on Friday projected that world oil consumption will grow by just 700,000 barrels a day in 2025, the slowest pace in 16 years outside of the 2020 pandemic slump. The largest quarterly contractions occurred in countries in the crosshairs of the trade war, including China, Japan, Korea, the US and Mexico, the agency said.

Trump’s tariffs threaten to exacerbate the situation, with levies including a 50% tax on imports from Brazil — a significant supplier of crude to the US — potentially upending flows.

Still, some lingering geopolitical tensions are preventing bearish sentiment from completely overtaking crude prices. Trump said he’ll make a “major statement” on Russia on Monday, raising speculation he’ll push to curtail Moscow’s oil exports. Meanwhile, deadly Houthi attacks in the Red Sea are maintaining concerns about key oil trade routes.

More importantly, the oil market may take its cues from several major economic reports scheduled for the coming weeks, including US consumer price index data that may sway the path of monetary policy in the world’s biggest economy.

“Prices are simply not justified,” said Scott Shelton, an energy specialist at TP ICAP Group Plc. “The outlook for crude oil prices appears bleak to me.”

—With assistance from Yongchang Chin.