Oil prices continued their slide on Tuesday after the Organization of the Petroleum Exporting Countries and allies agreed to stick to their plan of increasing oil output from April.
Prices also fell, influenced by a combination of geopolitical and economic factors.
Oil prices: tariffs and geopolitics
The decision by US President Donald Trump to temporarily suspend military aid to Ukraine introduced uncertainty into the global political landscape, contributing to market instability.
Simultaneously, investors and traders were preparing for the implementation of US tariffs on goods from Canada, Mexico, and China.
These impending tariffs heightened concerns about potential trade wars and their adverse effects on global economic growth, further dampening market sentiment and putting downward pressure on oil prices.
At the time of writing, the West Texas Intermediate April crude oil contract on the New York Mercantile Exchange was $68.08 per barrel, down 0.4%. The May Brent oil contract on the Intercontinental Exchange was down 0.7% at $71.10 a barrel.
A White House official confirmed Monday that all US military aid to Ukraine has been paused.
This follows last week’s Oval Office clash between President Trump and Ukrainian President Volodymyr Zelenskiy.
The market had been expecting a ceasefire in the ongoing war between Russia and Ukraine, which would have likely seen the US ease sanctions against Moscow’s oil exports.
However, Goldman Sachs analysts argued that Russian oil flows are more restricted by Russia’s OPEC+ production target than by sanctions, and that any easing of the production target may not lead to a substantial increase in oil flows.
OPEC+ decision
“Oil prices are under pressure with ICE Brent settling more than 1.6% lower (on Monday). This follows news that OPEC+ is sticking with plans to gradually increase supply from April by 138k b/d in the month,” analysts with ING Group, said.
OPEC+ in an official press release late on Monday said the cartel would go ahead with its plan of unwinding some of its voluntary production cuts of 2.2 million barrels per day from April.
The cuts will be gradually overturned over 18 months, starting in April.
OPEC+ said in the release:
Accordingly, this gradual increase may be paused or reversed subject to market conditions. This flexibility will allow the group to continue to support oil market stability.
“This development hasn’t changed our view on the market, as we already thought supply would return,” ING analysts said.
The cartel had extended the voluntary production cuts multiple times last year. The cuts were originally scheduled to expire in June 2024.
However, poor global demand and increasing non-OPEC supply had prompted OPEC to stick with the steep output cuts.
Oil prices: bears have control
“The daily MACD is in negative territory, but it is not back to the kind of ‘oversold’ levels from which big rallies have previously begun,” said David Morrison, senior market analyst at Trade Nation.
Overall, it feels as if the bears have control, having driven back prices from the highs made in mid-January.
At that time, it appeared as though crude had ultimately broken free from a downtrend that had been developing since September 2023.
Crude prices have fallen despite some relatively upbeat manufacturing data from China.
“Investors have yet to be convinced that the Chinese economy is ready to recover from its disastrous property collapse,” Morrison said.
The loss of billions of yuan, much of which was owned by private citizens, resulted in a significant loss of confidence.
This situation is further exacerbated by Trump’s tariffs, with an additional 10% tax on US imports from China set to begin tomorrow.
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