Oil Falls as Concerns About Demand Amid US Tariff Upheaval Return

Oil prices declined over 1.5 per cent on Monday as investors renewed their focus on worries that U.S. tariffs on its trading partners will generate economic challenges that will slow down fuel demand growth, per a Reuters report. Brent crude futures fell by $1.10, or 1.6 per cent, to $66.86 a barrel at 0255 GMT following a 3.2 per cent increase on Thursday. U.S. West Texas Intermediate crude traded at $63.57 per barrel, declining by $1.11, or 1.7 per cent, following a 3.54 per cent increase in the prior session. Thursday marked the final settlement day of the previous week due to the Good Friday holiday. "The overall trend still leans toward the negative, as investors could find it tough to gain confidence in a better supply-demand perspective, particularly due to the impact of tariffs on global growth and increasing outputs from OPEC+," stated IG market strategist Yeap Jun Rong.

Tariffs Weigh on Oil Demand

OPEC+, the coalition of key producers including the Organisation of the Petroleum Exporting Countries and partners like Russia, is anticipated to raise output by 411,000 barrels daily beginning in May. However, some of that boost could be countered by reductions from nations that have surpassed their quotas. Prices also dropped as certain supply concerns diminished after indications of advancement in nuclear discussions between the United States and Iran on Saturday. During the discussions, Iran's foreign minister stated that the U.S. and Iran consented to start formulating a framework for a possible nuclear agreement, following talks that a U.S. official characterised as producing "very good progress." The advancement comes after the U.S. imposed additional sanctions last week on a Chinese independent oil refinery accused of processing Iranian crude, increasing pressure on Tehran during the negotiations.

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Fears regarding a reduction in Iranian oil supply and optimism for a trade agreement between the United States and the European Union drove Brent and WTI up by approximately 5 per cent last week, marking their initial weekly increase in three weeks. Nevertheless, markets continue to be anxious about the impacts of the U.S. tariff strategy and its trade conflict with China, leading to declines in the dollar and Asian stock markets on Monday. A Reuters survey conducted on April 17 indicated that investors think the tariff policy will cause a major slowdown in the U.S. economy this year and the next, with the median likelihood of recession in the coming 12 months nearing 50 per cent. The United States is the largest oil consumer in the world.

Investors are monitoring various U.S. data releases this week, such as the April flash manufacturing and services PMI, for guidance on the economy. "This week's PMI releases may highlight the economic effects of tariffs, as both manufacturing and service conditions in key economies are anticipated to weaken," stated IG's Yeap, who also mentioned that oil prices encounter resistance around the $70 mark.