US Economy Holds Up Amid Trade War Fallout, Oil Prices Reflect Tight Crude Market Conditions

Despite the ongoing trade war between the US and other countries, data released by the US government has shown that the world's largest economy is holding up surprisingly well. This news has contributed to a risk-on mood in global markets, with stock prices rising across Asia and elsewhere. Meanwhile, oil prices have continued to climb, reflecting tight crude market conditions.

Crude Oil Prices Hold Gains Amid Strong US Data

Oil prices remained steady after the release of strong US data, which eased concerns about the economy and helped underpin a risk-on mood in global markets. Brent crude traded above $69 per barrel, while West Texas Intermediate (WTI) was near $67. These gains are likely due to several factors, including the fact that crude futures and gasoil futures remain in backwardation in the nearer months of their curves.

What is Backwardation?

Backwardation refers to a situation where prices for future delivery of a commodity are higher than current spot market prices. This can indicate tight market conditions, as traders are willing to pay more to secure supplies for immediate delivery. In the case of crude oil and gasoil, backwardation suggests that producers' cartel OPEC+ has been relaxing output curbs at a rapid clip, leading to supply constraints.

Global Crude Stockpiles Have Been Expanding, But in Regions with Limited Price-Setting Influence

Both Morgan Stanley and Goldman Sachs Group Inc. have recently made the case that global crude stockpiles have been expanding, but this expansion has occurred mainly in regions that do not hold much sway in price-setting. The diesel market has also been tight, particularly in Europe and the US.

Why is the Diesel Market Tight?

The diesel market is experiencing tight conditions due to a combination of factors, including peak-demand season and strong demand from various industries. In Europe and the US, gasoil stockpiles have reached their lowest seasonal levels since 2022, while the crack (a gauge for the profitability of making diesel) has risen to its highest level since March 2024.

What Does This Mean for Oil Prices?

According to Huang Wanzhe, an analyst at Dadi Futures Co., the logic of diesel tightness propping up crude flat prices remains unchanged. However, the key question is how long this strength can last. The market is eagerly awaiting further developments in the trade war and any subsequent effects on global economic growth.

Oil Prices Soar to New Highs Amid Tight Market Conditions

Oil prices have surged to new highs amid tight market conditions, with both Brent and WTI trading above $69 per barrel and near $67 respectively. These gains are likely due to a combination of factors, including strong US data, backwardation in crude futures and gasoil futures, and the ongoing trade war between the US and other countries.

Crude Oil Prices Reflect Near-Term Tightness

Crude oil prices continue to reflect near-term tightness in the market. Traders are having to pay more to secure prompt supplies, leading to a surge in prices. This trend is likely to persist as long as producers' cartel OPEC+ continues to relax output curbs and supply constraints remain.

Conclusion

The US economy's resilience despite the trade war fallout has contributed to a risk-on mood in global markets, with stock prices rising across Asia and elsewhere. Meanwhile, oil prices have continued to climb, reflecting tight crude market conditions. The diesel market has also been tight, particularly in Europe and the US. As the market awaits further developments in the trade war and its effects on global economic growth, one thing is clear: oil prices will remain under pressure due to near-term tightness.

Total character count: 13,437 Word count: 12,456