By K Raveendran
Oil prices have hit their lowest since October and by all indications the downward move is far from over. Brent has already dipped below 70 dollars per barrel as the market is feeling the weight of a supply overhang, with OPEC+ barrels set to flood an already well-supplied system, keeping a lid on any meaningful price recovery.
This is despite the fact that the anticipated supply losses from US President Trump’s sanctions and tariffs are yet to be considered serious given the administration’s flip-flop. The prices have already had a salutary effect on Asian consumers, with Saudi Arabia announcing a cut in the Asia prices further, as the producers seek to protect their market shares even In the face of declining prices.
Analysts highlight that the oil market is grappling with bearish sentiments due to OPEC+’s gradual return of barrels and the uncertain impacts of U.S. tariffs. The sensitive balance between policy uncertainty and oversupply suggests that prices may struggle to recover unless demand improves or production is curtailed.
The commencement of U.S. tariffs, particularly President Trump’s fluctuating tariff policies, has created significant market volatility and investor uncertainty. The U.S. dollar weakened, contributing to the euro experiencing its largest weekly rise since the financial crisis. In Europe, stock markets dipped, reflecting broader economic concerns exacerbated by soft factory data in Germany and tariff-related anxieties. Global trade tensions have also impacted China, with its imports falling substantially amid growing trade war fears, further affecting global economic stability.
Prices experienced a brief rebound following comments by Russia’s deputy prime minister, suggesting that OPEC+ might reverse its decision to increase oil production. Despite plans to start pumping more oil in April, Brent crude prices surged to over $71 a barrel. The U.S. intention to purchase $20 billion in oil to refill its strategic petroleum reserve also boosted prices. Kazakhstan’s vow to cut production following an increase in its output added to the market’s complexity.
But this could not be sustained as concerns over a potential oil glut and the impact of U.S. economic health and trade tariffs persisted. Analysts note that U.S. growth and Chinese demand are uncertain, with China’s oil imports dropping 5 percent in early 2025. Despite this, a thin Chinese stockpile might prevent a significant price drop.
Despite recent U.S. policy measures against Iran, including plans to halt its oil exports, the market faces downside risks due to increased supply from OPEC+ and non-OPEC producers. OPEC+ announced an output increase of 138,000 barrels per day starting in April, contributing to the oversupply concerns.
Prices have slipped as markets reacted to U.S. tariff threats on Mexico and Canada and OPEC+ confirming its plan to turn the production taps back on in April. The tariffs, initially set to take effect, have now been put on ice, leading to a slight rebound in prices, but crude remains under pressure.
Canadian retaliatory tariffs are still in place and China will act on retaliatory tariffs next week.
The market is feeling the weight of a supply overhang, with OPEC+ barrels set to flood an already well-supplied system, keeping a lid on any meaningful price recovery.
OPEC+ is banking on demand holding steady but adding more oil at this point risks tipping the market further out of balance and runs the risk of the market flipping into contango.
The tariff threats sent shockwaves through markets, not just because of potential trade disruptions, but also due to fears of retaliatory moves that could ripple through energy supply chains.
While the delay in tariffs has provided a brief sigh of relief, the market is still walking a tightrope between policy uncertainty and oversupply concerns.
OPEC+ now faces a high-stakes balancing act—member states need higher revenues, but if supply outpaces demand, prices could come under even more pressure.
Macroeconomic indicators will be the compass for the market in the weeks ahead, with inflation trends, interest rate decisions, and global GDP growth determining whether demand strengthens or weakens.
For now, crude remains in a fragile position, and unless demand picks up or production is reined in by OPEC+, prices may struggle to find solid footing. (IPA Service)
