Oil Prices Surge on Supply Risks and Tariff Relief: Can the Rally Hold?

Crude oil futures rallied on Thursday, testing critical technical resistance at $62.74, as a ruling by a U.S. trade court against former President Donald Trump’s tariffs eased global demand concerns and supply disruptions fueled bullish sentiment.

Light crude oil futures rose 1.5% to $62.80 per barrel by 6:42 PM IST, up $0.96, according to Bloomberg data, with traders eyeing a potential breakout toward $66.73. The market’s optimism stems from a combination of alleviated trade tensions, production halts in Venezuela and Canada, and looming U.S. sanctions on Russian oil.

As investors await the OPEC+ meeting and U.S. inventory data, the near-term outlook tilts bullish, though volatility remains a key risk.

Tariff Reversal Sparks Demand Optimism

A decision by a U.S. trade court to block Trump’s sweeping tariffs, which had threatened to dampen global trade, provided a significant boost to oil prices.

The ruling, which cited overreach, has temporarily alleviated fears of a trade war, with SEB analyst Bjarne Schieldrop noting it could “enhance global economic momentum,” supporting oil demand.

Goldman Sachs revised its 2025 Brent forecast to $68 per barrel, up from $66, citing improved demand expectations.

However, analysts warn that an appeal could reinstate uncertainties, with RBC estimating that a full trade war could slash global oil demand by 600,000 barrels per day (bpd).

For now, the tariff relief has driven a 2.1% weekly gain in West Texas Intermediate (WTI), per Reuters data.

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Supply Risks Intensify Across Multiple Fronts

Supply-side pressures are mounting, adding fuel to the rally. Chevron’s loss of its U.S. license in Venezuela has cut 290,000 bpd, roughly 35% of the country’s exports, tightening global heavy crude supplies, according to the U.S. Energy Information Administration (EIA).

In Canada, wildfires in Alberta have disrupted 150,000 bpd of oil sands production, with evacuations ongoing near Fort McMurray, per CBC News.

Meanwhile, potential U.S. sanctions on Russian oil exports, which represent 7.5% of global supply (7.8 million bpd), could further constrict markets if enforced; however, Reuters reports that traders remain skeptical about the immediate impact due to workarounds by Chinese and Indian buyers.

These disruptions have offset bearish pressures from rising U.S. crude inventories, which grew by 3.2 million barrels last week, per preliminary API data.

Did You Know?
Venezuela’s oil exports, primarily heavy crude, fell by 38% in Q1 2025 after tightened U.S. sanctions, impacting Gulf Coast refiners reliant on similar grades, per EIA data.

OPEC+ Output Plans and Inventory Data in Focus

The upcoming OPEC+ meeting, scheduled for early June, is a critical focal point, with the group expected to confirm a 411,000 bpd production increase for July, tripling its prior plan of 138,000 bpd, according to the International Energy Agency.

However, overproduction by members like Kazakhstan and Iraq may limit the actual increase to under 200,000 bpd, per IEA estimates.

We expect the EIA's official inventory report, due later Thursday, to reveal a modest build of 300,000 barrels, in contrast to API's larger estimate, which could potentially influence the price direction.

Despite OPEC+’s planned hike, analysts at Morgan Stanley suggest that supply risks from Venezuela, Canada, and Russia could keep Brent above $70 by Q3 2025, supported by a projected global demand growth of 1.2 million bpd this year.