Oil prices held steady near four-year highs Tuesday after Washington’s successful renegotiation of a North American free trade agreement reassured investors global demand could remain strong as supplies begin to tighten.
Light, sweet crude for November delivery ended seven cents, or 0.09%, lower at $75.23 a barrel on the New York Mercantile Exchange, marking the second-highest closing value of the year. Brent crude, the global benchmark, settled 0.2% lower at $84.80 a barrel.
Both crude benchmarks closed nearly 3% higher Monday, with the U.S. benchmark settling at a four-year closing high of $75.30 a barrel.
A last-minute trade deal with Canada paves the way for a three-way agreement including Mexico to revise the North American Free Trade Agreement under a new name, and diminishes any chances that President Trump might follow through on his threats to kill Nafta outright.
That, analysts said, bodes well for overall demand for crude oil to keep increasing, driven by emerging markets and continued growth in the global economy. The world now consumes about 100 million barrels a day of oil despite worries that electric cars and a rising trend toward renewable energy sources might one day reduce oil consumption.
“The [new Nafta] deal reduces the fear of significantly lower GDP and global growth due to tariffs and a trade war,” said Kyle Cooper, a consultant at ION Energy. “You may hate Trump, or disagree with how he did it, but he got something done.”
The U.S. remains in a trade fight with China that could have even larger implications for global oil demand if the spat gets worse. But Mr. Cooper said the demand outlook is “quite bullish” in the wake of the new Nafta deal, and there is more hope now that “while China is a completely different animal, Trump will be able to pull it off.”
The expectations of still-strong demand for oil come as U.S. oil sanctions against Iran, a major oil exporter, are set to begin next month. The sanctions forbid oil-importing countries and companies from buying Iranian crude, so this could put a squeeze on overall global supplies and make the commodity costlier.
Other major oil producers, meanwhile, may not raise their own oil production enough to make up the difference.
“The general impression out there currently seems to be that there is either an outright inability or at least a certain unwillingness on the part of key OPEC/OPEC-plus members to compensate for the expected continuation of declining Iranian export flows,” said consultancy JBC Energy.
Despite the market’s bullish sentiment in recent days, JBC noted that oil inventories aren’t drawing down the way they were at this time last year, and said there are some signs of slackening demand for oil. As such, it said “we cannot shake the feeling that this bull bet is a dangerous one.”
On Wednesday, oil investors will watch for a weekly report on U.S. oil inventories from the government’s Energy Information Administration. A survey by The Wall Street Journal indicates analysts, on average, are expecting that U.S. crude oil inventories rose by 1.3 million barrels last week.
The American Petroleum Institute, an industry group, said late Tuesday that its own data for the week showed a 907,000-barrel increase in crude supplies, a 1.7 million-barrel decline in gasoline stocks and a 1.2 million-barrel decrease in distillate inventories, according to a market participant.
Among refined products, gasoline futures for November delivery ended virtually unchanged at $2.1269 a gallon. Diesel futures ended flat at $2.4076 a gallon.