Trade Tensions Cloud Oil Outlook Despite Global Supply Headwinds

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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• Oil prices extended their slide for a fourth session, with Brent stuck in a tight range near $68.
• Market sentiment is diverging: U.S.-based money managers are heavily bearish on WTI, while non-U.S. traders are more optimistic on Brent.
• Europe’s gas inventories continue to build strongly, pressuring TTF prices.

Oil prices fell for a fourth straight session on Wednesday, with lingering uncertainty over looming tariffs by the Trump administration continuing to dampen sentiment ahead of the August 1 deadline, which a Mizuho analyst described for Seeking Alpha as “a possible demand destruction event”.

The European Union is reportedly exploring potential counter-measures against the U.S. as the deadline approaches, and on Tuesday, U.S. President Donald Trump set a 15% reciprocal tariff on Japan’s exports to the U.S. Japan cut auto duties, while opening Japan’s markets to the U.S.

Brent crude for September delivery was quoted at $68.66 per barrel as of Wednesday at 2:55 p.m. ET, with the last six daily settlements falling in a narrow range of $68.52-69.52/bbl, an indication of a lack of conviction amongst traders.

Interestingly, commodity analysts at Standard Chartered have reported that market sentiment for the leading crude grades is highly divergent.

To wit, StanCharts crude oil money-manager positioning index for the main WTI contract clocked in at -75.7, indicating a high degree of bearishness while the same metric for the main Brent contract shows modest bullishness at +29.3. Over the past two weeks alone, money managers have cut net longs in WTI by 82.9 million barrels (mb) but increased bullish bets on Brent by 72.3 mb.  This marks the third consecutive week that the Brent and WTI positioning indices have diverged.

Related: Iran Hit by Power Protests as Oil Exports Surge to 1.9 Million bpd

StanChart notes that U.S.-based traders appear to be more bearish than their European, Asian or Middle Eastern peers, following general asset markets and concentrating heavily on tariff deals and FOMC news flow. Non-U.S. traders, on the other hand, appear to be paying more attention to oil market fundamentals. However, StanChart says the path of least resistance for oil prices from here is higher, driven by three key catalysts. 

First off, non-OPEC+ supply is under-performing with U.S. supply likely to fall. Indeed, the U.S. Energy Information Administration (EIA) has projected that U.S. production will decline in 2026, the first contraction since 2021 due to lower oil prices and reduced drilling activity. According to the latest Baker-Hughes drilling survey, U.S. oil rig count fell for the 12th consecutive week to a 45-month low of 422 rigs. 

The largest w/w fall was in the Texas portion of the Delaware Basin where activity fell by five rigs to 61 rigs, with the rig count in Reeves County falling by five to 23. EIA has forecast U.S. oil output will drop to 13.37 million barrels per day (bpd) in 2026, down from an expected 13.42 million bpd in 2025. The energy watchdog has cited inventory growth as the primary reason for lower oil prices, with global inventories expected to grow by 800,000 barrels in 2025 and 600,000 barrels in 2026. 

Second, StanChart has pointed out that short- and long-term oil demand are proving to be more robust than the consensus. Finally, OPEC+ policy is becoming increasingly proactive, with the background of a sustained campaign by key members to increase the effectiveness of the organization. 

Meanwhile, Europe’s gas inventories have continued climbing. Europe’s LNG imports have continued above seasonal averages, helping refill inventories ahead of winter. According to Gas Infrastructure Europe (GIE) data, inventories stood at 75.60 billion cubic metres (bcm) on 20 July; good for a 2.46 bcm increase over the previous week and 31% above the five-year

average. The deficit has now narrowed on each of the past 11 days and currently stands at

a five-month low of 20.39 bcm. This trend points to an end-injection season

level of close to 100 bcm, or close to 90% of storage capacity. 

The rapid inventory build has kept the pressure on European gas prices: Dutch Title Transfer Facility (TTF) gas for August delivery fell by EUR 2.30 per megawatt hour (MWh) w/w (6.5%) to EUR 32.90/MWh, bringing prices closer to the year-to-date settlement low of EUR 31.86/MWh and the 52-week settlement low of EUR 31.62/MWh). 

However, StanChart says an upside tail risk remains in the form of potential U.S. secondary sanctions against consumers of Russian oil and gas. Further, Europe’s LNG demand is outpacing Asian demand, where it has been weaker-than-expected.

By Alex Kimani for Oilprice.com

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