Oil prices experienced a significant downturn in August, with West Texas Intermediate (WTI) crude dropping more than 7% to approximately $64.00 per barrel. This marks the first monthly decline since April, primarily driven by supply surplus concerns. Brent crude, however, showed a slight increase during the same period.

Supply Surplus and Market Concerns

The International Energy Agency's prediction of an ongoing supply surplus has contributed to cautious sentiment among traders. Market concerns were further heightened by geopolitical factors, including Russian oil flows and U.S. tariffs on India.

US Inventory Draw

Despite the overall price decline, US crude inventories showed a larger-than-expected draw of 2.40 million barrels, surpassing analysts' predictions of a 1.90 million barrel reduction. This substantial draw indicates robust demand leading up to the Labor Day weekend, which traditionally marks the conclusion of the peak driving season in the United States.

Geopolitical Tensions and Trade Policies

The oil market faces additional pressures from geopolitical events and shifting trade policies:

• US-India Trade Tensions: President Trump has doubled tariffs on Indian imports to 50%, citing India's continued purchases of Russian oil. Despite this punitive measure, India is expected to maintain its short-term buying of Russian crude.

• Russia-Ukraine Conflict: Both nations have intensified attacks on energy infrastructure. Russian drone strikes have left over 100,000 people without power across six Ukrainian regions, highlighting the ongoing volatility in Eastern Europe.

Federal Reserve's Stance

Federal Reserve President John Williams hinted at potential rate cuts, pending a review of economic data at the upcoming September 16-17 meeting. This development could potentially support oil demand by stimulating increased economic activity.

Market Outlook

As the market digests these various factors, the oil industry faces a complex landscape:

• The end of the US summer driving season typically heralds lower seasonal demand.
• Geopolitical tensions continue to introduce uncertainty into the market.
• Potential changes in US monetary policy could influence economic activity and, by extension, oil demand.

Investors and industry observers will be closely monitoring these developments as they navigate the evolving energy market landscape in the coming months.

Oil prices increased 1.3% to close over $64.00 per barrel following a larger-than-expected drop in U.S. crude and fuel supplies, which helped ease supply glut concerns. The price rise occurred despite U.S. tariffs on Indian products and warnings from the International Energy Agency about potential OPEC+ supply increases that could create a record surplus next year.

US Tariffs on Indian Exports

The United States has imposed additional 25% tariffs on Indian exports, bringing the total tariffs to 50%. This move comes in response to India's continued purchases of Russian oil, which have increased following Russia's invasion of Ukraine. However, analysts are questioning the effectiveness of these higher US tariffs on Indian purchases.

Oil Price Movements

While the latest data shows a significant increase, earlier in the week, Brent crude saw a minimal increase of $0.02, reaching $67.24 per barrel, while West Texas Intermediate (WTI) remained unchanged at $63.25. Both contracts had experienced a decline of over 2% on Tuesday.

Indian Refiners' Response

Initially, Indian refiners reduced their Russian crude purchases following the tariff announcements. However, state-owned refiners Indian Oil and Bharat Petroleum have since resumed buying Russian supplies for September and October. Indian Oil has stated that it will continue purchasing Russian crude based on economic considerations.

Russian Export Dynamics

Recent Ukrainian drone attacks on Russian refineries have led to reduced operations, forcing Russia to export crude oil that it cannot process domestically. In response, Russia has increased its crude oil export plan from western ports by 200,000 barrels per day for August.

The oil market continues to closely monitor these developments, as geopolitical tensions and shifting trade patterns impact global supply and demand dynamics. The recent price increase, driven by the drop in U.S. supplies, demonstrates the complex interplay of factors affecting the global oil market.