Oil prices gained modest ground on Wednesday, boosted by a US decision to ban Chevron from exporting crude oil from Venezuela, while Canadian production faced disruptions, as markets await the OPEC+ meeting this week.

Brent crude futures rose 54 cents, or 0.8% to $64.63 a barrel as of 10:50 GMT, while US West Texas crude rose 64 cents, or 0.9% to $61.45 a barrel.

Washington Bars Venezuelan Oil

Reuters reported that US President Trump’s administration barred Chevron from exporting Venezuelan oil while allowing it to maintain its assets there.

OPEC+ Meeting Impending 

Later today, the OPEC+ organization will hold a meeting, widely expected to decide on raising output in July by Saturday.

Otherwise, Analysts noted that higher oil demand is upcoming as the summer driving season approaches, in a time when non-OPEC+ oil production failed to sustain any growth in the first half of the year, while Canadian forest fires continue to threaten supplies. 

Goldman Sachs Expects Production Hike

Goldman Sachs’ analysts expect OPEC+ to maintain stable production after the expected hike in July, as new projects stream into the market this year, while GDP growth slows down.

Analysts also caution that prices could rise if US-Iran nuclear talks completely stall, or if trade talks between US and global partners fail to produce results.

The Iranian nuclear energy agency said it might allow US inspectors to visit nuclear sites if talks with the US succeeded.

Oil Prices Face Weak Outlook

Goldman Sachs’ analysts repeated their forecasts for lower oil prices this year and the next due to strong production growth in non-OPEC members.

Analysts expect major projects to accelerate production by nearly a million bpd in the next two years, with a similar spike in natural gas production due to new projects in Saudi Arabia and Qatar.

US Shale Production Slows Down

US shale oil production is expected to stall this year as lower prices force US producers to restrict activities.

Goldman Sachs’ analysts said if prices remained lower for the next two years, the peak in shale production could happen sooner than expected.

UBS: Markets More Balance Than Expected

UBS’s analysts however doubted the analysis by Goldman Sachs and expressed belief that the oil market remains balanced overall and will not face the oversupply crisis that other analysts are warning against.

Goldman Sachs expects Brent prices to average $60 a barrel in 2025, and $56 in 2026, while US crude prices are expected at $56 this year and $52 the next.

The bank now expects global demand to rise by 600 thousand bpd this year and 400 thousand bpd in 2026.

The dollar index rose 0.08% against a basket of major rivals today to 99.608, but remains 8% lower since the start of the year as investors seek alternatives to US assets, impacted by the trade wars.

US Economy Faces Pressure Despite Optimism 

Recent data showed US durable goods orders fell in April by the fastest pace in six months, as the trade war starts to impact the economy and corporations. 

ING Bank’s analysts wrote in a memo that more positive surprises in data are needed to restore confidence in US growth, with deficit worries persisting for the time being.

Additional Support from Trump’s Decisions 

The dollar was further boosted by US President Donald Trump’s decision to delay EU tariffs.

Reuters’ sources said European officials asked major corporations and CEOs in the EU to provide details on their US investments as Brussels intensifies trade talk with Washington.

Sterling, Aussie, and Kiwi 

Sterling rose $1.3506 and remained near a three-year high marked on Monday.

As for the Australian dollar, it hit $0.6445 against the greenback after data showed inflation held steady in April, underpinning hopes for a rate cut.

The New Zealand dollar rose 0.37% to $0.5971, after the central bank said it might approach the end of the policy easing cycle after an expected 0.25% rate cut.

Does Reduction of the Trade Deficit Require Weakening the Dollar?

If the US is serious about reducing its significant trade deficit, it might have to weaken the US dollar considerably, but history shows that something like that is highly unlikely. 

Reducing the trade deficit is a major target for President Trump, as he views the deficit as a result of decades of other countries’ preying on US wealth.

Dollar Moving in Desired Path 

If the Trump’s administration indeed intends to weaken the dollar, it’s moving in the right path, as the dollar is 10% weaker this year amid growing concerns about US fiscal policies and the end of “American Exceptionalism” as some investors view it. 

However, it’s worth noting that the dollar fell 15% during Trump’s first term and it didn't impact the trade deficit, which remained between 2.5% and 3.5%.

History’s Burden: Could the Deficit be Squashed without Recession?

Reducing the US trade deficit is a huge challenge, and outright eliminating it without a recession would be a historic task.

The US has sustained a chronic trade deficit for half a century due to increasing consumer demand on imported products.

The only exception was in the third quarter of 1980, when the US marked a slight trade deficit at 0.2% of GDP, with similar small quarterly surpluses in 1982, 1991 and 1992, mostly due to a sharp economic slowdown or a recession that tanked imports.

Dollar’s Role in Balancing Trade

The dollar played a pivotal role in reducing the deficit only once, during 1985-1987, when the dollar tumbled 50% following the Plaza agreement that aimed to weaken it after a sharp increase in the early eighties, and indeed, the deficit plunged by the early nineties. 

However, it doesn’t mean that even sharp decline by the dollar leads to deficit reduction, with the greenback falling by 40% between 2002 and 2008, but the deficit kept rising to a record of 6% of GDP in 2005.

During the last 50 years, the dollar index sustained only four 20% drops, none of them led to an improvement in the trade balance.

Could the Deficit Really Disappear?

The US administration admits the dollar remains historically strong according to several measures, with the official pressure from Trump’s government mounting on the dollar value.

How much would the dollar need to fall to reduce the trade deficit amounting to $918 billion last week, about 3.1% of total GDP?

Some analysts believe that a 20-30% drop in dollar’s value could just be enough to bring the deficit to parity once more in upcoming years, but such a step is historically very difficult without a recession.

Gold prices rose on Wednesday in European trade, resuming gains after a two-day hiatus and heading towards two-week highs once more as buying gains momentum around the $3300 barrier.

Gains are curbed however by a strong dollar following upbeat US data and ahead of the Federal Reserve’s meeting minutes. 

Prices

Gold prices rose 0.7% today to $3323 an ounce, with a session-high at $3291.

On Tuesday, gold lost 1.25%, the second loss in a row on profit-taking away from a two-week high at $3365.

US Dollar

The dollar index rose 0.35% on Wednesday, extending gains for the second session against a basket of major rivals.

Recent data showed the CB consumer sentiment index rallying to 98 in May, easily beating estimates of 87.1.

US Rates

According to the Fedwatch tool, the odds of a June 0.25% interest rate cut by the Federal Reserve stood at just 6%.

The odds of a July rate cut stood at 25%.

Markets now expect 50 basis points of total rate cuts by the end of the year, starting October.

Now investors await the Federal Reserve’s meeting minutes later today, expected to provide fresh clues on the future path of US interest rates.

The Fed maintained interest rates unchanged at below 4.5% for the third meeting in a row, and warned against increasing risks of inflation and unemployment, with economic uncertainty mounting due to Trump’s tariffs.

Fed Chair Jerome Powell said back then following the policy meeting that the Fed isn’t in a hurry to cut rates.

SPDR

Gold holdings at the SPDR Gold Trust remained unchanged yesterday at 922.46 tons.

The euro fell in European trade on Wednesday against a basket of major rivals, extending losses for the second straight session against the US dollar and backing off a four-week high on profit-taking. 

Hot inflation data and bullish remarks from ECB officials led to divisions among policymakers on the rate decision in June, with investors awaiting German and Spanish inflation data this week to gather more clues. 

Recent US data showed consumer confidence beat estimates in May, indicating that concerns about US recession have diminished.

The Price

The EUR/USD price fell 0.25% today to $1.1300, with a session-high at $1.1345.

The euro fell 0.5% on Tuesday against the dollar, on track for the first loss in three days away from a four-week high at $1.1419.

European Rates

Recent eurozone data showed inflation rose past estimates in April, renewing pressures on ECB policymakers. 

ECB President Christine Lagarde said the euro could be a practical alternative to the dollar if governments managed to bolster the financial and security structures in the EU.

Now markets estimate a less than 50% likelihood for a 0.25% ECB rate cut in June.

US Dollar

The dollar index rose 0.3% on Wednesday, extending gains for the second session against a basket of major rivals.

It comes as US-EU trade tensions receded with Trump granting the EU another chance for reaching a trade deal before July 9, backing off his 50% tariff threat for EU goods.

Recent data showed the CB consumer sentiment index rallying to 98 in May, easily beating estimates of 87.1.

Now investors await the Federal Reserve’s meeting minutes later today, expected to provide fresh clues on the future path of US interest rates.