Plummeting Oil Prices Due to Worries over the U.S. Economy
In the rapidly evolving world of global energy markets, several significant developments have emerged in recent weeks, shaping the trajectory of oil prices and influencing the economic outlook.
President Trump announced a series of tariff measures aimed at countries with trade surpluses with the US, effective from August 7. These tariffs, including a 10% global minimum and 15% or higher for specific countries, could potentially have far-reaching implications for the global economy and energy demand.
Meanwhile, in the oil sector, the U.S. saw a decrease in active oil rigs, with the number dropping by 5 rigs to a new 3.75-year low of 410 rigs in the week ending August 1. This decline comes as OPEC+ boosted its crude production, aiming to reverse a 2-year-long production cut and restore a total of 2.2 million bpd of production by September 2026. OPEC+ agreed to raise its crude production by 548,000 bpd beginning August 1, exceeding expectations.
However, this increased production may not be enough to counterbalance the current supply-demand imbalance. Gasoline inventories were -0.7% below the seasonal 5-year average, and distillate inventories were -15.2% below the 5-year seasonal average. These inventory levels suggest a tight market, which could put upward pressure on prices.
The interplay between OPEC+ production decisions and tariff policies indirectly affecting global trade is a complex one. While the direct impact of tariffs on oil prices may be less emphasized in current market analyses, they remain a background factor influencing global economic uncertainty and, consequently, demand projections.
Economic reports, such as the monthly EIA outlooks and industry analyses, show demand surprising positively in early 2025 despite slowing supply growth outside OPEC+. Factors such as non-OPEC production slowing and evolving consumer behavior are contributing to this trend.
In the geopolitical arena, the Middle East continues to be a source of instability. Saudi Arabia stated that additional similar-sized increases in crude output could follow, adding to the uncertainty in the market. On the other hand, OPEC+ is discussing a pause in further production increases from October, signalling a possible shift in strategy.
Elsewhere, the Iraqi government approved a plan for the semi-autonomous Kurdish region to resume oil exports, while the European Union approved fresh sanctions on Russian oil due to its aggression against Ukraine.
In the US, the slump in the S&P 500 to a 2-week low has curbed confidence in the economic outlook, and the Jul nonfarm payrolls rose +73,000, weaker than expectations of +104,000. Crude oil inventories as of July 25 were -5.6% below the seasonal 5-year average, and crude oil stored on tankers that have been stationary for at least seven days rose by +23% w/w to 84.99 million bbl in the week ended July 25.
US crude oil production in the week ending July 25 rose +0.3% w/w to 13.314 million bpd. However, crude oil and gasoline prices sold off sharply on Friday, indicating market volatility.
Looking ahead, global oil prices in 2025 are expected to remain in the $60–70 per barrel range, with expected gradual easing into 2026 as markets balance supply and demand. The U.S. Energy Information Administration (EIA) forecasts Brent crude prices averaging just under $70 per barrel in 2025, marginally up from earlier outlooks due to geopolitical tensions and supply disruptions, but expects a decline to about $58 per barrel in 2026 as supply growth outpaces demand.
Kurdistan expects to supply Iraq's crude market with 230,000 bpd of crude once exports resume, adding another variable to the complex equation that is shaping global oil prices. As these developments unfold, it is clear that the oil market will continue to be a dynamic and fascinating arena to watch.
In the realm of global finance, the increasing tariffs imposed by President Trump could have wide-ranging implications for the global economy and energy demand, potentially impacting the overall economic outlook.
The interplay between the oil sector and lifestyle factors is also intriguing, as the trend of evolving consumer behavior is contributing to the unexpectedly positive demand for oil, even while supply growth outside OPEC+ remains slow. This emerges as a key consideration in forecasting future oil prices.
