Oil Prices Fall 0.8-0.9% for Third Day on U.S.-EU Trade Tensions, Global Demand Fears

Oil prices fell for the third consecutive day on Tuesday as escalating trade tensions between the United States and the European Union raised concerns over global fuel demand. By 12:19 GMT, Brent crude futures dropped 53 cents (0.8%) to $68.68 a barrel, while U.S. West Texas Intermediate (WTI) crude slid 63 cents (0.9%) to $66.57 a barrel. The active September WTI contract, which replaced the expiring August contract, was at $65.43 a barrel, down 52 cents (0.8%). The decline reflected growing unease over the potential economic fallout from the looming tariff dispute between the world’s two largest oil-consuming economies.

Traders are bracing for the impact of higher tariffs, which could dampen industrial activity and reduce energy consumption. The White House has set an August 1 deadline for trade partners to negotiate or face U.S. tariffs, including a 30% levy on EU goods. EU diplomats signaled preparations for countermeasures but acknowledged the likelihood of a trade pact is diminishing. The prospect of retaliatory measures has deepened market uncertainty, overshadowing near-term supply constraints from OPEC production cuts and U.S. sanctions on energy exports.

A weaker U.S. dollar has limited the magnitude of losses, as crude remains relatively affordable in other currencies. Meanwhile, strong refining margins for diesel and other distillate products, driven by low stockpiles, have provided modest support to oil prices. However, the bullish factors have been outweighed by demand-side concerns. A Reuters survey of analysts suggested U.S. crude inventories fell by approximately 600,000 barrels in the third week of July, highlighting ongoing demand resilience despite trade tensions. Yet, the broader economic risks remain the dominant narrative.

The three-day decline underscores the fragility of the current market equilibrium, balancing geopolitical risks against macroeconomic headwinds. While the immediate focus remains on the U.S.-EU standoff, analysts emphasize that prolonged trade disruptions could force further adjustments in global energy dynamics. The International Energy Agency’s latest report, though focused on gas markets, highlights broader uncertainties in energy consumption growth, with natural gas demand projected to rise in 2026 amid easing LNG supply constraints. For oil, the immediate outlook remains clouded by the interplay of trade policy shifts and shifting demand patterns.

Market participants are now turning attention to upcoming data releases and policy developments that could shape the next phase of price action. Any escalation in tariffs or retaliatory measures is likely to intensify downward pressure on crude. Conversely, a resolution in trade negotiations could offer temporary relief. Until then, oil prices remain vulnerable to fluctuations in risk appetite and the evolving trajectory of global economic activity.