Oil prices slide on trade war fears and Opec+ supply concerns

[WORLD] Oil prices dropped around 2% on Tuesday, hitting their lowest levels in two weeks, as investors anticipated a potential increase in output from Opec+ and fretted over the impact of escalating US-China trade tensions on global fuel demand.

Brent crude futures fell $1.61, or 2.4%, to settle at $64.25 per barrel. US West Texas Intermediate (WTI) crude lost $1.63, or 2.6%, ending the session at $60.42. Both benchmarks marked their weakest closing levels since April 10.

The decline in crude prices reflects mounting anxiety over a slowdown in global economic growth, particularly if trade disputes intensify. The International Monetary Fund (IMF) recently downgraded its global growth forecast for 2025 by 0.2 percentage points, citing trade conflicts and geopolitical instability as major risks. A deceleration in key economies such as China and the United States could sharply curtail oil consumption, which has already shown signs of softening.

US President Donald Trump’s sweeping tariffs have fueled fears of a recession, with a majority of economists in a Reuters poll warning the measures could tip the global economy into contraction this year.

China, the main target of US tariffs, has retaliated with duties on American goods, escalating a trade war between the world’s two largest oil consumers. Analysts have since slashed their forecasts for oil demand growth and prices.

Adding to the uncertainty is China’s growing strategic petroleum reserve (SPR). Some market observers suggest that Beijing may release oil from its reserves to temper domestic price increases—a move that could put additional pressure on global markets.

"Trade between China and the US has slowed to a semi-embargo type flow. Every day that passes without some kind of deal with any of our significant trade partners brings us one day closer to a global demand destruction situation," said Bob Yawger, director of energy futures at Mizuho, in a note.

In the US, the trade deficit in goods widened to a record in March, as businesses rushed to import products ahead of looming tariffs—highlighting trade as a major drag on first-quarter growth.

Corporate fallout from the trade dispute was also evident Tuesday. Logistics firm UPS announced plans to cut 20,000 jobs to rein in costs, while General Motors postponed its earnings call and withdrew its guidance, pending clarity on trade policy.

Across the Atlantic, European markets are preparing for spillover effects. Germany’s automotive industry—a significant consumer of US crude and refined products—has warned of production cutbacks if tariffs persist. The European Central Bank has also flagged trade uncertainty as a downside risk to its economic outlook, potentially dampening energy demand across the region.

To offset the impact of auto tariffs, Trump is reportedly considering an executive order that would blend tariff relief on parts and materials with environmental credits, following pressure from automakers. Meanwhile, UK energy giant BP reported a steeper-than-expected 48% drop in net profit to $1.4 billion, weighed down by weaker refining margins and gas trading.

Attention now turns to upcoming earnings reports from US oil majors Exxon Mobil and Chevron, which investors will scrutinize for indications of how producers are navigating the ongoing market volatility. Any scaling back in capital spending or production targets could signal a more cautious industry approach, with implications for future supply.

On the supply front, several Opec+ members are expected to advocate for a second consecutive monthly increase in output when the group meets in June, sources told Reuters.

"Another production hike from Opec+ could not happen at a worse time when sentiment is already weak, and with Kazakhstan not showing much interest in reducing production," said Ole Hansen, analyst at Saxo Bank.

Kazakhstan, a member of the Opec+ alliance, raised its oil exports by 7% year-on-year in the first quarter, driven by increased volumes through the Caspian pipeline, according to Reuters analysis of official data.

Investors are also awaiting US oil inventory reports, with data from the American Petroleum Institute due Tuesday and the US Energy Information Administration (EIA) scheduled to release figures on Wednesday.

Analysts estimate that US stockpiles rose by around 500,000 barrels in the week ending April 25. If confirmed, it would mark the fifth consecutive weekly build, compared with a 7.3 million-barrel increase during the same period last year and a five-year average build of 3.2 million barrels.