(Investing) – Oil prices retreated Thursday, handing back earlier gains after data showed the U.S. economy contracted in the first quarter, suggesting the Trump administration’s volatile trade policies were weighing on economic activity.
At 09:15 ET (13:15 GMT), for July fell 0.7% to $63.89 a barrel, and dropped 0.6% to $61.47 a barrel.
Oil was sitting on some gains this week after a devastating Russian attack on Ukraine sparked expectations of more U.S. sanctions, while the restriction of Chevron’s Venezuelan crude exports also pointed to tighter supplies.
But oil prices were still trading down sharply so far in 2025, as they were battered by concerns over weak demand and slowing economic growth.
Crude hit by U.S. growth contraction
The U.S. economy contracted in the first quarter, with gross domestic product showing a decline of 0.2% annualized in the January-March quarter, the BEA said in its second estimate of GDP.
The economy was initially estimated to have contracted at a 0.3% pace. It grew at a 2.4% rate in the fourth quarter.
Additionally, the number of Americans filing new applications for unemployment benefits increased more than expected last week, while the jobless rate appeared to have picked up in May as labor market conditions continue to ease.
Initial claims for state unemployment benefits rose 14,000 to a seasonally adjusted 240,000 for the week ended May 24, the Labor Department said on Thursday.
Worker hoarding by employers following difficulties finding labor during and after the COVID-19 pandemic is underpinning the jobs market. Nonetheless there has been an uptick in layoffs because of economic uncertainty as President Donald Trump pursues an aggressive trade policy, which economists say is making it challenging for businesses to plan ahead.
Tariff court ruling had boosted sentiment
These signs of economic weakness have overturned the earlier positive tone after a federal court blocked Trump’s “liberation day” tariffs, stating that the President superseded his authority in their imposition.
The ruling boosted risk appetite, amid hopes that Trump will not be able to impose the tariffs when his early-July deadline expires. Trump had unveiled the proposed tariffs– which entail double-digit duties against several major economies– in early-April, an event he dubbed as “liberation day.”
Trump’s tariff plans were the biggest point of uncertainty for oil markets this year, as traders fretted over their economic impact and their effect on oil demand.
The White House has announced plans to appeal the decision.
US oil inventories see major drawdown – API
Data from the showed on Wednesday that U.S. oil inventories shrank by 4.24 million barrels (mb) in the past week, in contrast to expectations for a build of 1 mb.
The API data usually heralds a similar reading from , which is due later on Thursday.
Signs of a sharp drawdown in U.S. oil stockpiles sparked hopes that fuel demand in the country remained strong despite heightened economic uncertainty.
Focus is now on an upcoming OPEC+ decision on July production over the weekend, although the group is now expected to leave output unchanged.
Ambar Warrick contributed to this article.
