Oil Rises as Sanctions Tighten Market Supply

Key Takeaways:

*Geopolitical Risk Supports Prices: U.S. and EU sanctions on Russia tighten supply outlook, lifting oil despite added OPEC+ output.

*Tariff Escalation Threatens Demand: Trump’s 30% duties on EU/Mexico stoke fears of slower travel and industrial activity, pressuring long-term demand.

Market Summary:

Crude oil prices continued to edge higher at the start of the week, extending last Friday’s gains as geopolitical risk and physical supply tightness counterbalance mounting concerns over global demand destruction from escalating U.S. tariffs. Brent crude hovered near $70.50 per barrel, while WTI held above $68.60, supported by signs that markets remain fundamentally undersupplied heading into peak summer consumption.

The immediate driver remains geopolitics. The U.S. has teased a “major statement” on Russia, with bipartisan efforts gaining momentum in Congress to impose sweeping 500% tariffs on nations purchasing Russian energy—a move that could reshape global crude flows. Meanwhile, the EU is nearing its 18th sanctions package, expected to include a lower price cap on Russian oil, further curbing supplies. These factors have added upside pressure to prices, despite an OPEC+ decision to increase August output by 548,000 barrels per day.

Notably, that supply bump failed to dent prices. UAE officials stated that the market absorbed the additional barrels without inventory builds—underscoring a still-tight physical backdrop. OECD oil stockpiles remain 97 million barrels below their five-year average, and U.S. inventories at Cushing just hit an 11-year low. Diesel markets also face pressure from refinery cuts, contributing to broad-based product tightness. Saudi Arabia exceeded its June production quotas by over 400K barrels per day but defended its stance, clouding perceptions of OPEC+ discipline.

Still, the medium-term demand outlook remains fraught. Former President Trump’s announcement of 30% tariffs on EU and Mexican goods—effective August 1—has fueled fears of a broader trade war that could slow industrial production and curb international travel, two key drivers of fuel demand. Analysts warn that rising protectionism could undercut oil’s bullish thesis into late 2024 and 2025. China’s trade data, due later today, may provide clarity on Asia’s demand trajectory.

Technical Analysis 

USOIL, H4

USOIL is attempting to reclaim higher ground, rising toward the $68.60 region after stabilizing above key moving averages. The recovery comes after a sharp drop from the recent swing high near $77.10, with price currently testing the underside of a descending trendline that has capped upside attempts since late June. A clean break above this resistance zone could pave the way for a push toward the 23.6% Fibonacci retracement at $72.60 and the 38.2% level at $75.10.

Technical momentum is gradually improving. The Relative Strength Index (RSI) has rebounded to 59, inching toward bullish territory but not yet signaling overbought conditions. This indicates that there is still room for upside without triggering immediate exhaustion, although momentum remains modest.However, the MACD is showing early signs of a bullish crossover, with the MACD line attempting to climb above the signal line and histogram bars turning slightly positive. While still nascent, this development suggests that downside momentum has faded and bullish pressure may be returning.

From a structural standpoint, USOIL is trying to transition out of a corrective phase, with the $65.60 region now acting as a key demand zone. As long as price holds above this area, bulls may retain control in the near term. 

Resistance levels: 67.30, 65.60
Support levels: 68.60, 72.60