Focus shifting back to fundamentals and risk appetite
Beyond Iran, which Trump brought back on the agenda Saturday, we are watching several fundamental drivers.
First, the OPEC+ meeting on July 6. According to anonymous sources cited in the press on Friday evening, the group – or more precisely, the eight countries that introduced the extraordinary cuts back in November 2023 – is expected to deliver a fourth consecutive production increase of 411,000 barrels per day. It suggests Russia is more clearly on board this time. Possibly a signal to get closer to Trump, now that he confirmed his commitment to NATO's Article 5 and opened the door to supplying Patriot missiles to Ukraine.
Second, US crude inventories. They've shown a surprisingly sharp draw in Q2. The latest figures showed a weekly drop of 5.8 million barrels. Over the past five weeks, US inventories have fallen by 28 million barrels. Stocks are now not only at their lowest since January but also at their lowest for this time of year in at least a decade, 28 million barrels below the same week last year
Third, the focus is back on macro data. In the coming week, all eyes are on the key US jobs report. Note that it will be released on Thursday, as the US Independence Day holiday falls on Friday, July 4. The market expects an increase in nonfarm payrolls of 113,000.
Fourth, attention turns to Trump's "One Big Beautiful Bill Act." Yes, that's the official name. Trump aims to get it passed before July 4, Independence Day. We are watching for renewed nervousness in the rates market, as the bill includes significant, unfunded tax cuts.
Fifth, monetary policy and the dollar. There has been renewed speculation that Trump will soon announce a new dovish Fed chair, even though the next term officially begins in May next year. That drove dollar selling last week. In addition, the rally in US equity markets is triggering so-called rebalancing flows (USD selling via forwards) as foreign investors hedge FX risk in response to growing asset values in the US market.
Historically, a weaker dollar has often led to higher oil prices. There was a prevailing belief that oil should be priced equally in all currencies, and the US economy was more energy-intensive than the European economy. Today, the relationship has reversed, and perhaps even the causality has flipped. A drop in oil prices due to rising OPEC+ production now hits the US harder than Europe, as the US has become the world's largest oil producer and a net exporter. That means a weaker dollar no longer automatically supports oil prices. However, the recent weakening of the USD is now so pronounced that oil may once again start rising alongside the dollar's decline.
Finally, trade policy is back in focus. If no agreement is reached, the higher US tariffs, including those on goods from the EU, will take effect on July 9. A new tariff war will be negative for the oil price.
