Oil prices are trading firmer this morning after the US and EU announced a trade deal, which will see most EU exports to the US facing a 15% tariff. The market worried that if talks had failed, 30% tariffs would come into effect on 1 August. That likely would’ve prompted retaliation from the EU. As part of the deal, the EU agreed to buy $750b worth of US energy over three years. The EU continues to move away from Russian natural gas, with a roadmap to end all Russian gas imports by the end of 2027. The EU was already set to lean more heavily on the US for its energy needs.
The latest data shows that speculators reduced their position in ICE Brent by 11,352 lots over the last reporting week, leaving them with a net long of 277,393 lots as of last Tuesday. However, in the middle distillate market, speculators continue to build long positions amid a tightening in the market. Speculators increased their net long in ICE gasoil by 8,012 lots to 98,180 lots, the largest position since June 2024.
The US oil rig count saw yet another week of declines, despite more stable prices in recent weeks. Baker Hughes data shows that the oil rig count fell by seven over the last week to 415, the lowest level since September 2021. Rig activity in the US has fallen for thirteen consecutive weeks, declining almost 13% over this period.
The oil market will face increased noise over the week around OPEC+ output policy. The group will decide on September output levels on 3 August. The group may feel emboldened to go with yet another large supply hike for September, given that prices are holding up relatively well despite supply increases already announced in recent months. We expect that OPEC+ will at least complete the full return of 2.2m b/d of the additional voluntary supply cuts by the end of September. This would work out to a supply hike in September of at least 280k b/d. However, there is clearly room for a more aggressive hike.