Sentiment among oil traders has turned bullish recently despite forecasts flagging sluggish demand growth and OPEC+’s latest decision to add more barrels to its combined production.
The reason for the change in sentiment was U.S. President Donald Trump’s threat to impose new sanctions on Russia unless it agreed to a quick ceasefire with Ukraine. Following the news, oil jumped to the highest in a month—despite those sluggish demand forecasts.
Brent crude began trading this week at over $69 per barrel, even after OPEC+ announced it would add another 547,000 barrels daily to its combined production next month. That was down from over $73 at the end of last week, when President Trump made his threat and, on top of that, slapped India with 25% tariffs plus an extra levy to punish India for importing Russian crude.
The reaction of oil traders to the news is kind of surprising, not least in light of the bearish demand projections by a number of prediction outlets, including the International Energy Agency and a number of investment banks. Yet this reaction is a fact, and it suggests that the hold of bearish demand forecasts over the market is not as strong as it used to be.
Institutional traders raised their bullish bets on Brent crude and West Texas Intermediate by close to 40,000 in the last week of July, Bloomberg reported on Friday. That was the sharpest increase in bullish positions since June, the publication added. In June, the surge in bullish bets came in response to the missile strike exchange between Israel and Iran, which ignited fears of a wider war in the Middle East.
The identical reaction of traders now suggests they are concerned about the security of Russian oil supply amid the U.S. president’s push to force a ceasefire on the warring parties in the Donbass. Earlier this month, President Trump issued a threat to impose 100% secondary tariffs on countries that buy Russian crude unless Russia agreed to a ceasefire with the Zelensky government. Russia’s exports average some 7 million barrels daily, which is a substantial chunk of total global exports. If Trump decides to enforce these sanctions, the world may swing into an oil deficit, ING commodity analysts predicted in mid-July. However, the story just got more complicated.
India said last week it has no plans to stop buying Russian crude, whatever the U.S. says. Reuters reported, citing unnamed government sources from New Delhi, that there were no immediate plans to suspend purchases of Russian crude despite the U.S. president’s threat of additional sanctions in the form of 100% tariffs.
“These are long-term oil contracts,” one of these told the publication. “It is not so simple to just stop buying overnight.” It is not about the contracts only, however. It seems relations between Washington and New Delhi have soured significantly in recent months, and the chief reason for this, according to a recent report by the Financial Times, is the fact that India buys so much Russian oil.
Secretary of State Marco Rubio called these purchases “a point of irritation” in bilateral relations and President Trump himself made a demonstrative gesture of sealing a trade deal with Pakistan and boasting about plans to jointly develop the country’s “massive” oil reserves while at the same time calling India’s economy “dead”, along with Russia’s.
Things between the U.S. and one of the world’s biggest oil importers are tense, then. In fact, they are so tense that the U.S. president appears willing to risk an oil price surge with secondary tariffs—and traders are positioning themselves for just such a surge. But it is not only India that is refusing to heed Trump’s orders. China has refused to stop buying Russian oil as well.
“China will always ensure its energy supply in ways that serve our national interests,” the foreign ministry in Beijing wrote on X last week after a two-day negotiations session with the U.S. in Sweden and after Trump issued the 100% secondary tariff threat. U.S. Treasury Secretary Scott Bessent commented that the “Chinese take their sovereignty very seriously,” adding that “We don’t want to impede on their sovereignty, so they would like to pay a 100% tariff,” as quoted by Australia’s ABC earlier today.
Yet going through with the 100% tariff threat would be counter-productive for Trump on two fronts: trade deals and cheap gas. A jump in global oil prices resulting from the deployment of the punitive tariffs would mean a jump in U.S. oil prices as well. Also, a punitive tariff of 100% on China will quite likely put an end to all progress made on a trade deal so far—and President Trump has made it clear he wants that trade deal. The question now seems to be just how much he wants it, and whether he’s willing to risk higher oil prices and that deal to try and get Russia to agree to a ceasefire.
By Irina Slav for Oilprice.com
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