Oil prices rose slightly on Tuesday, supported by growing instability in the Middle East, recently unveiled Chinese stimulus plans, and some important economic data. Despite these factors, concerns about global growth, the impact of US tariffs, and ongoing trade talks contributed to limiting gains.
Brent crude futures rose 17 cents, or 0.2%, to $71.24 per barrel by 03:50 GMT. US West Texas Intermediate (WTI) crude futures rose 14 cents, or 0.2%, to $67.72 per barrel.
Analysts at ING noted in a research note that several factors contributed to the support for oil prices, including China’s announcement of new plans to stimulate domestic consumption, which included boosting incomes and providing childcare subsidies. Chinese economic data also showed an acceleration in retail sales growth during January and February, giving investors cause for optimism.
Analyzing the Economic Conditions in China and Their Impact on Oil Markets
Chinese data showed improvements in some economic indicators, with retail sales recording an unexpected increase. The data also showed a 2.1% increase in crude oil consumption in China, the world’s largest oil importer, during January and February compared to the previous year. This increase contributed to supporting oil prices, especially with the start-up of a new refinery and increased travel during the Chinese New Year holidays.
In the same context, the Chinese government’s announcement of a plan to boost domestic consumption cast a shadow over global markets. The plan included several measures, such as increased financial support for families and increased incentives for social welfare projects. These steps were part of China’s efforts to bolster the domestic economy amid challenging economic conditions.
Geopolitical Tensions and Their Impact on Oil Prices
Geopolitical tensions have not been immune to their impact on oil markets. They have increased instability in the Middle East. Despite these developments, some reports indicate that the United States continues to take a firm stance.
Fears of slowing economic growth and the impact of tariffs on global demand
On the other hand, global oil demand remains a major concern. The Organization for Economic Co-operation and Development (OECD) confirmed in a report that the tariffs imposed by the United States on some countries will lead to a decline in growth in North American economies, including the United States, Canada, and Mexico. This expected decline in economic growth could result in a decline in global energy demand.
In this context, Robert Rennie, head of commodity strategy at Westpac, stated that global oil supply is witnessing a significant increase, while increasing tariffs and trade wars are negatively impacting global demand. Rennie added that oil prices are likely to continue declining in the coming period and could reach mid-$60s per barrel. Global Oil Supplies and Oversupply Fears
Regarding global oil supplies, a document released by Venezuela’s state oil company, PDVSA, showed that it is continuing to work on three production scenarios to increase oil exports, despite Chevron’s license expiring next month. According to the document, PDVSA plans to continue oil production from its joint ventures, which could lead to an increase in oil supply in global markets.
Oil prices fell about 2% to a 12-week low on Monday amid reports that OPEC+ will proceed with a planned increase in oil production in April and concerns that US tariffs could harm global economic growth and oil demand. Brent crude futures fell $1.19, or 1.6%, to settle at $71.62 a barrel, while US West Texas Intermediate crude fell $1.39, or 2.0%, to close at $68.37.
Trump pledged to impose a 25% tariff on all imports.
These were the lowest closing levels for Brent crude since December 6 and for WTI crude since December 9. Bob Yawger, director of energy futures at Mizuho, said in a report that “crude oil is under siege on multiple fronts and is vulnerable to the latest bearish headlines or economic data,” referring to the OPEC+ decision, US manufacturing data, Ukraine peace talks, and US tariffs.
Three OPEC sources said on Monday that the organization and allies such as Russia, known as OPEC+, have decided to proceed with a planned increase in oil production in April. OPEC+ is cutting output by 5.85 million barrels per day, equivalent to about 5.7% of global supply, as part of a series of steps agreed upon since 2022 to support the market.
Britain said several proposals had been made for a truce in the fighting between Ukraine and Russia, after France put forward a plan for a month-long ceasefire leading to peace talks, but US President Donald Trump indicated his patience was running out. Meanwhile, the United States is preparing a plan to ease potential sanctions on Russia, as Trump seeks to restore relations with Moscow and halt the war in Ukraine. Russia is the third-largest oil producer after the United States and Saudi Arabia and is a member of OPEC+.
US Tariffs
Trump has pledged to impose a 25% tariff on all imports from Canada and Mexico, and a 10% tariff on Canadian energy products. Canada’s oil drilling and services sector showed signs of slowing before the tariff threats. Mexican President Claudia Sheinbaum said her country was prepared for any decision Washington reached. In response to the US tariffs, China, the second-largest economy after the United States, said it was preparing countermeasures to the tariffs targeting US agriculture.
US Federal Reserve Inflation Concerns
US manufacturing was steady in February, but a measure of factory-gate prices jumped to its highest level in nearly three years, and materials took longer to be delivered, suggesting that import tariffs could soon undermine production. Analysts said Trump’s planned tariffs have also raised inflation concerns at the US Federal Reserve. This could push the Fed to keep interest rates higher for longer, potentially slowing economic growth and energy demand.
Concerns about the potential impact of slowing economic growth on oil demand have weighed on West Texas Intermediate crude oil prices, which have fallen by about 10% over the past six weeks. This prompted speculators last week to reduce their net long positions in US crude futures and options on the New York Mercantile Exchange and the Intercontinental Exchange to their lowest levels since their all-time low in December 2023.
In other US energy markets, the start of trading for the April contract, as the new primary month, sent diesel futures to a nine-week low as the winter heating season ended. Gasoline futures rose to a six-month high ahead of the summer driving season.
Oil Price Outlook for the Near Future
With the increasing supply of oil in global markets, coupled with ongoing geopolitical tensions, the overall trend in oil prices is expected to remain volatile. With the ongoing trade wars, US tariffs, and geopolitical factors in the Middle East, concerns about a slowdown in oil demand will persist. At the same time, the possibility of reaching de-escalation agreements in and around Ukraine remains a matter of interest to markets, as markets believe the negotiations could lead to an easing of sanctions on Russia, which would directly impact oil prices.
