Oil Prices Dip Amid Growing Concerns Over Tariff Impact

Oil prices continued to decline for a second consecutive day in early trading on Tuesday due to concerns that U.S. tariffs on Canada, Mexico, and China could slow global economic growth and reduce energy demand, even as OPEC+ increases its oil supply.

As of 0016 GMT, Brent crude futures dropped 29 cents, or 0.42%, to $68.99 per barrel, while U.S. West Texas Intermediate (WTI) crude futures declined by 36 cents, or 0.55%, to $65.67 per barrel.

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Market volatility has been fueled by U.S. President Donald Trump's protectionist trade policies. His administration has imposed and then postponed tariffs on Canada and Mexico—two of the country's largest oil suppliers—while also increasing levies on Chinese imports. In response, both China and Canada have implemented their own retaliatory tariffs.

Over the weekend, Trump acknowledged that the economy might undergo a "period of transition" but refrained from speculating on the possibility of a recession, despite growing market concerns over his trade actions.

"Trump’s comments triggered a wave of selling as investors started pricing in the risk of weaker growth in demand," said Daniel Hynes, senior commodity strategist at ANZ.

The stock market, which often influences crude oil prices, also suffered heavy losses on Monday. All three major U.S. indexes saw significant declines, with the S&P 500 recording its steepest one-day drop since December 18, while the Nasdaq tumbled 4.0%, marking its largest single-day percentage drop since September 2022.

Meanwhile, U.S. Commerce Secretary Howard Lutnick stated on Sunday that Trump remains firm on maintaining tariff pressure on Mexico, Canada, and China.

Supply and Demand Concerns

On the supply side, Russian Deputy Prime Minister Alexander Novak announced on Friday that OPEC+ members agreed to begin increasing oil production in April. However, the group may reverse this decision if market conditions become imbalanced.

Analysts believe that increasing supply amid global economic uncertainty could put further downward pressure on oil prices. If trade tensions continue to escalate, demand could weaken even more, leading to excess supply in the market. Some OPEC+ members have expressed concerns that pumping more oil could lead to price instability, particularly if major economies begin to slow.

Additionally, the U.S. is facing shifts in its own energy landscape. Domestic oil production has been resilient, with shale output remaining strong. However, refinery maintenance, seasonal fluctuations, and geopolitical developments could play a crucial role in determining price movements in the coming months.

Inventory Data and Market Outlook

In the U.S., preliminary data from a Reuters poll indicated that crude oil stockpiles likely increased last week, while gasoline and distillate inventories were expected to have declined. Rising stockpiles suggest that supply may be outpacing demand, which could further contribute to downward pressure on oil prices.

The American Petroleum Institute (API) is set to release its weekly inventory report at 4:30 p.m. EDT (2030 GMT) on Tuesday, followed by the U.S. Energy Information Administration’s (EIA) report at 10:30 a.m. EDT (1430 GMT) on Wednesday. These reports will provide key insights into U.S. oil supply trends and could influence market sentiment in the near term.

Despite the recent declines, some analysts believe that oil prices could find support if trade negotiations between the U.S. and its key trading partners show signs of progress. Any easing of tariffs or diplomatic resolutions could help stabilize global markets and bolster energy demand.

However, uncertainty remains high, with investors closely monitoring economic indicators, geopolitical developments, and central bank policies for clues on the future trajectory of oil prices. If trade disputes persist and global growth weakens, further declines in crude prices could be expected.

As markets remain volatile, energy traders and investors will be looking for any signs of policy shifts from major economies, particularly the U.S. and China. The coming weeks could prove critical in determining whether oil prices stabilize or continue their downward trend amid ongoing trade tensions and supply concerns.