Oil falls for third session as U.S.-EU trade tensions fuel demand worries

Tuesday, July 22, 2025

Prices declined for a third consecutive session on Tuesday, pressured by fears that escalating trade tensions between the United States and the European Union could drag on economic activity and curb fuel demand, despite support from firm distillate margins and a weaker dollar.

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Market snapshot (as of 6:25 EST):

• Brent (September): $68.72 (▼$0.49 / -0.7%)

• WTI (August): $66.69 (▼$0.51 / -0.9%) — contract expires today

• WTI (September): $65.48 (▼$0.47 / -0.7%)

Both benchmarks extended losses as nervousness grows ahead of the U.S. August 1 deadline for major trading partners to finalize new trade agreements or face steep 30% tariffs.

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U.S.-EU trade standoff intensifies

The Trump administration’s tariff deadline is spurring urgency in global trade talks. EU diplomats say the prospects of an acceptable agreement are fading, with Brussels exploring broader countermeasures against Washington.

“Oil prices fell for a third straight session … as urgency builds in trade negotiations between the U.S. and its partners,” said Soojin Kim, analyst at MUFG.

“Prices have slipped as trade war concerns offset the support by a softer U.S. dollar,” noted IG market analyst Tony Sycamore.

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Demand outlook dims despite distillate strength

While weaker demand fears are dominating sentiment, distillate margins remain firm, limiting downside for crude. U.S. inventories of diesel and jet fuel remain below seasonal norms.

“The move lower might have seen more momentum if it were not for the continued performance in distillates which continues to be aided by low stocks,” said PVM Oil analyst John Evans.

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Gasoline market softens amid demand lull and import surge

Analysts are increasingly focused on gasoline markets, where a stretch of extreme weather and increased imports are reshaping summer dynamics:

• Fuel demand in the week ending July 4 was down 2.5% year-over-year, likely due to extreme heat reducing driving activity.

• U.S. gasoline prices dipped to $3.14/gal, the lowest summer level since 2021.

• Imports surged, peaking mid-June at 100,700 bpd, the highest in over a year.

“If refiners are producing more gasoline, you need a place to park it if it’s not being consumed,” said Steven Barsamian at The Tank Tiger.

East Coast markets, which rely heavily on imports, saw price differentials widen, while storage demand rose to a three-year high in June.

Notable supply contributors include:

• Nigeria’s Dangote refinery, which has ramped up U.S.-compliant gasoline exports.

• Irving Oil’s New Brunswick refinery, consistently supplying New York Harbor.

• Colonial Pipeline, which confirmed it will increase Line 1 capacity by 5% to 7% above typical summer levels.

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Inventory outlook and expectations

A Reuters poll of analysts suggests that U.S. crude inventories likely fell by 600,000 barrels last week…

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Bottom line:

Trade policy remains the key driver of oil market sentiment this week. While low distillate inventories and refinery activity are cushioning losses, the risk of a full-scale trade war between the U.S. and EU continues to weigh on demand outlooks. Analysts expect prices to remain volatile as the August 1 tariff deadline nears.