Oil Prices Rebound as Inventories Decline Amid Global Trade Optimism

Oil prices edged higher on Thursday, reversing a three-day downturn, fueled by an unexpected drop in U.S. crude inventories and positive signals concerning global trade relations. This uptick comes despite ongoing concerns about softening demand and the geopolitical landscape.

Front-month WTI crude oil futures saw a rise of 0.5% to reach $66.71 per barrel, while front-month Brent crude oil futures increased by 0.4% to $68.77 per barrel. This movement follows U.S. government data released on Wednesday, which revealed a fall of 3.9 million barrels in commercial crude oil stocks (excluding the Strategic Petroleum Reserve) for the week ending July 11, defying analyst expectations of unchanged stockpiles. However, a concurrent increase in oil product inventories has raised some concerns regarding potential softening in summer travel demand.

Beyond inventory data, broader economic sentiment and trade developments are influencing the market. U.S. President Donald Trump has indicated that letters outlining tariff rates for more than 150 countries will be issued soon, with potential levies of more than 10% or 15%. Simultaneously, new trade agreements with Indonesia and Vietnam have been announced. Furthermore, President Trump conveyed renewed optimism about a deal with Beijing on illicit drugs, hinted at a nearing trade agreement with India, and suggested a possible agreement with Europe, all contributing to a more positive global trade outlook.

Analysts note that China's economic data, showing a slower but less severe growth deceleration in the second quarter than initially feared, has also provided support. Chinese crude oil throughput in June increased by 8.5% compared to the previous year, implying stronger fuel demand.

Despite these near-term bullish factors, the market remains attentive to the potential for a glut later in the year as peak summer demand wanes and OPEC+ supplies return. While distillate stockpiles in the U.S. remain at seasonally low levels since 1996, the profitability of making diesel, indicated by the September futures spread between low-sulfur gasoil and Brent, has risen by about 7% this month.

Adding another layer to market dynamics, several oil fields in Iraq's semi-autonomous Kurdistan region experienced drone attacks on Wednesday. However, this region has not been exporting crude to global markets since its export pipeline was shut down more than two years ago.

Meanwhile, major oil-producing nations are actively expanding their output capacities, seemingly unfazed by global net-zero emission targets. The UAE aims to increase its production capacity to 5 million barrels per day (bpd) by 2027, with potential for further expansion. Iraq plans to boost its capacity to over 6 million bpd by 2029, and potentially 7 million bpd within five years. Saudi Arabia maintains a commitment to a 12 million bpd crude capacity, asserting its role in global energy security. Brazil, outside of OPEC+ agreements, is investing heavily, with Petrobras earmarking $77 billion for oil and gas exploration and production over the next five years. Guyana's production has already surpassed 660,000 bpd, with expectations to exceed 1.7 million bpd capacity by 2030, leading to significant economic growth. Namibia is also striving to become a major oil producer, with significant discoveries already made. Even Norway, a leader in electric vehicle adoption, intends to maintain high oil and gas output until at least 2035 to meet European demand, supported by substantial government investment in the sector.