Oil prices retreated on Wednesday after a sharp rally in the previous session, as traders eyed an anticipated jump in US crude inventories. Despite the pullback, prices remained near two-week highs, underpinned by optimism following the US-China trade agreement to temporarily lower their reciprocal tariffs.
As of 0400 GMT, Brent crude futures had fallen 39 cents or 0.6% to $66.24 per barrel, while US West Texas Intermediate (WTI) crude dropped 36 cents, or 0.6%, to $63.31.
Both benchmarks had gained more than 2.5% in the prior session.
US-China Trade Deal Boosts Market Sentiment
The agreement between the world’s two largest economies on Monday to pause their trade war for at least 90 days gave a boost to market sentiment. The United States slashed tariffs on Chinese goods to 30% from 145%, while China reduced duties on US imports to 10% from 125%.
Priyanka Sachdeva, senior market analyst at Phillip Nova, noted that this economic pause could “invigorate demand amidst cautious optimism.” However, she cautioned that US oil inventory expectations tempered the overall positive sentiment.
US Oil Inventory Build Weighs on Prices
While the market had enjoyed a rally, expectations of a sharp increase in US oil inventories capped further gains. The American Petroleum Institute (API) reported that crude stocks rose by 4.3 million barrels during the week ending May 9, signaling that demand may still be facing significant challenges.
The official inventory data from the US Energy Information Administration (EIA) was due on Wednesday at 10:30 a.m. EDT (1430 GMT), adding to market uncertainty.
Sachdeva added, “This sharp contrast to last week’s substantial draw signals that the demand side is still grappling with significant challenges, leaving market watchers on edge.”
Geopolitical Developments and Supply Outlook
Meanwhile, geopolitical factors continue to influence oil prices. US President Donald Trump’s Gulf trip began on Tuesday, with an appearance at an investment forum in Riyadh. Trump announced that the US would lift long-standing sanctions on Syria and secured a $600 billion pledge from Saudi Arabia in investments.
In addition, Rystad Energy’s Mukesh Sahdev highlighted that preventing oil price spikes during the summer travel season would be a key focus of Trump’s trip. The US could also use lower prices to buy more crude for its Strategic Petroleum Reserve.
The US sanctions on Iranian oil continue to add uncertainty to the market. On Tuesday, fresh sanctions were imposed on about 20 companies accused of helping Iran send oil to China, further complicating the supply situation.
Looking Ahead
As oil prices remain at the mercy of supply-demand dynamics, geopolitical developments, and ongoing trade negotiations, investors are closely watching for any signals of demand recovery or supply disruptions. The global oil market’s next twist may well depend on these evolving factors, especially in relation to US-Iran tensions, Russia’s actions, and Venezuelan oil production.
