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Oil prices edged lower on Tuesday as markets digested the implications of a newly signed US-EU trade agreement and awaited the outcome of the US Federal Reserve’s upcoming policy meeting.

Brent crude futures fell by 6 cents, or 0.1%, to $69.98 per barrel as of 04:25 GMT, while US West Texas Intermediate (WTI) crude declined by 11 cents, or 0.2%, to $66.60 a barrel.

The slight retreat follows a strong performance in the previous session, where both benchmarks rose over 2%. Brent crude had touched its highest level since July 18, buoyed by initial optimism over the trade pact between the United States and the European Union.

US-EU Trade Pact Calms Markets but Raises Questions

The trade deal avoided a full-blown tariff war between the two economic blocs, offering a temporary reprieve to global markets. While it imposed a 15% import tariff on most EU goods, the agreement also included commitments for $750 billion in EU purchases of US energy products over the coming years — a target analysts say is highly ambitious.

Additionally, European firms have pledged to invest $600 billion in the US over the course of President Donald Trump’s second term. However, analysts at ANZ noted the agreement lacks clarity on implementation timelines and investment milestones.

“We think the 15% rate will pose headwinds to the Euro area’s growth outlook, but is unlikely to push the economy into recession,” the ANZ note said.

US-China Talks and Fed Decision Add to Uncertainty

In a parallel development, senior economic officials from the US and China held over five hours of discussions in Stockholm on Monday aimed at resolving deep-rooted trade disputes. Talks are set to continue Tuesday, with markets watching closely for signs of progress.

Investors are also bracing for the US Federal Reserve’s policy meeting on July 29-30. While the Fed is expected to keep interest rates unchanged, analysts say it could adopt a more dovish tone given recent data pointing to cooling inflation.

“Momentum favors the upside in the near term, but the market is vulnerable to volatility triggered by central bank surprises or a breakdown in trade negotiations,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.

“The likelihood of an economic slowdown and the Federal Reserve’s potential rate cuts remain uncertain, limiting the upside in oil,” she added.

Geopolitical Risks in Focus

Adding to the geopolitical uncertainty, President Trump on Monday set a new deadline of “10 or 12 days” for Russia to make visible progress in ending the war in Ukraine or face expanded sanctions. The White House has threatened to penalise both Russia and buyers of its exports unless there is measurable progress toward a resolution.

With a confluence of macroeconomic and geopolitical factors in play, analysts expect oil markets to remain sensitive to headline risks in the near term.