Oil Prices Decline Amid OPEC+ Output Increase, Tariffs, and US Aid Freeze to Ukraine
Oil prices continued their downward trend on Tuesday following reports that OPEC+ will proceed with its planned production increase in April. The decline was further driven by the implementation of new US tariffs on Canada, Mexico, and China, as well as China’s swift retaliatory measures.
Brent crude futures dropped by 1.8% to $70.35 per barrel, while US West Texas Intermediate (WTI) crude fell 1.6% to $67.27 per barrel.
Impact of OPEC+ Decision and Geopolitical Uncertainty on Oil Prices
According to Darren Lim, a commodities strategist at Phillip Nova, the main driver behind the oil price decline is the OPEC+ decision to increase production, coupled with the impact of US tariffs. Additionally, the market reacted negatively to reports that President Donald Trump has halted military aid to Ukraine, sparking speculation about a potential easing of sanctions on Russian oil.
On Monday, OPEC+ announced that it would increase production by 138,000 barrels per day (bpd) starting in April, marking its first output hike since 2022. This move caught the market off guard, according to Bjarne Schieldrop, Chief Commodities Analyst at SEB.
“It appears that OPEC is shifting its strategy, prioritizing political factors over price stability. These political maneuvers could be linked to negotiations with Donald Trump, who has consistently pushed for lower oil prices,” Schieldrop noted.
US Tariffs and China’s Immediate Response
The US enacted 25% tariffs on imports from Canada and Mexico, alongside a 10% tariff on Canadian energy products, which took effect early Tuesday. At the same time, tariffs on Chinese imports were raised from 10% to 20%.
Analysts warn that these tariffs could weigh on global economic activity and dampen energy demand, further pressuring oil prices.
China wasted no time in responding, imposing 10% to 15% tariffs on US agricultural and food imports and blacklisting 25 American firms from investment and trade opportunities.
This escalation in trade tensions has added further uncertainty to global markets. Tony Sycamore, a market analyst at IG, described the situation as a “perfect storm” for crude oil prices.
“Reports of the US halting military aid to Ukraine are seen as a potential precursor to lifting sanctions on Russian oil, which could flood the market with additional supply,” Sycamore said.
Possible Easing of Sanctions on Russia
Some sources have reported that the White House has asked the US State Department and Treasury to draft a list of sanctions that could be eased, as officials prepare for potential negotiations with Moscow.
This speculation has further weakened oil prices, as traders fear an oversupply scenario if Russian exports increase.
However, analysts at Goldman Sachs downplayed the potential impact of sanction relief, arguing that Russia’s oil exports are currently more constrained by OPEC+ production quotas than by Western sanctions. Thus, even if sanctions were lifted, it may not significantly impact Russian crude output.
Weak Demand Adds to Downward Pressure on Oil Prices
Beyond geopolitical factors, weaker demand from China has also contributed to the bearish sentiment in oil markets.
Josh Callaghan, Head of Crude Derivatives at Arrow Energy Markets, pointed out that China is entering a scheduled refinery maintenance period, which could further limit demand for crude oil in the coming weeks.
Market Outlook: More Pressure Ahead?
Oil markets are now facing multiple downward pressures—OPEC+ increasing output, a potential escalation in the US-China trade war, Trump’s decision to halt aid to Ukraine, and speculation about Russian sanctions relief.
If global demand fails to pick up and geopolitical uncertainty persists, oil prices may continue their decline in the coming weeks.
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