Oil prices stagnate as trade war fears cloud demand outlook

[WORLD] Oil prices remained mostly unchanged on Tuesday as investors processed the latest stories on US President Donald Trump's on-again, off-again tariffs and attempted to calculate how much the US-China trade war could decrease global economic growth and oil consumption. Brent crude futures declined 21 cents, or 0.3%, to close at $64.67 per barrel, while US West Texas Intermediate (WTI) crude slid 20 cents, or 0.3%, to $61.33.

The muted price movement reflects a market caught between conflicting signals—ongoing geopolitical tensions in the Middle East and a stronger US dollar, which typically pressures oil prices, are counterbalanced by persistent fears of weakening demand. Analysts note that traders remain cautious ahead of key inventory reports and further clarity on trade negotiations.

Vacillating US trade policies have generated uncertainty in global oil markets, prompting the Organization of Petroleum Exporting Countries to decrease its demand forecast on Monday. The International Energy Agency followed on Tuesday, predicting that global oil demand in 2025 will grow at its weakest rate in five years due to concerns about economic growth from Trump's trade tariffs.

Market participants are also closely monitoring OPEC+ compliance with production cuts, as some members, notably Iraq and Kazakhstan, have struggled to meet their agreed-upon quotas. Any signs of weakening discipline within the alliance could further weigh on prices, adding another layer of volatility to an already jittery market.

Due to tariff uncertainties, numerous banks, including UBS, BNP Paribas, and HSBC, reduced their crude price projections. "Should the trade war further escalate, our downside risk scenario case - i.e., a deeper US recession and a hard landing in China - could see Brent trading at US$40-60 (per barrel) over the coming months," commented Giovanni Staunovo, an analyst at UBS.

Worries over Trump's tariffs, along with a supply increase by Opec+, a group comprised of Opec and its producing allies such as Russia, have already caused oil prices to fall by almost 13% this month.

Meanwhile, China’s refiners have been capitalizing on lower crude prices, with imports rising to near-record levels in March. However, analysts warn that sustained demand from China is far from guaranteed, especially if the trade war deepens and further disrupts global supply chains. Oil prices rose after Trump announced on Monday that he was considering modifying the 25% tariffs imposed on foreign auto imports from Mexico and other countries.

"The US administration has announced multiple conflicting tariff policy changes, from... exempting electronics, to then revealing that this exemption would be temporary, and also announcing a modification to the 25% tariff imposed on auto and auto parts," analysts at energy consulting firm Gelber and Associates wrote in a note.

Bank executives in the United States have cautioned that if the instability caused by Trump's trade policy continues, consumer spending will suffer significantly. US import prices surprisingly decreased in March, driven by lower energy costs, the latest sign that inflation was cooling before Trump's sweeping tariffs went into force.

Some economists, however, are concerned that Trump's tariff measures may raise inflation, making it difficult for the US Federal Reserve to lower interest rates. The Federal Reserve and other central banks use higher interest rates to battle growing inflation, which raises consumer prices and can slow economic development and energy demand.

Despite Trump's pro-oil drilling policies, the US Energy Information Administration expects US oil output to peak at 14 million barrels per day in 2027 and remain there until the end of the decade before sharply dropping.

The American Petroleum Institute trade group will provide US oil inventory statistics later on Tuesday, followed by the Energy Information Administration on Wednesday. Analysts predict that energy businesses removed approximately 1.0 million barrels of oil from US stocks for the week ending April 11. This compared to 2.7 million barrels built the same week last year and an average build of 4.2 million barrels for the previous five years (2020-2024).

The upcoming inventory reports are expected to provide further clues on whether weakening demand is starting to outweigh supply constraints. A larger-than-expected draw could temporarily lift prices, but persistent concerns over trade tensions may limit any sustained rally.

In China, the world's second-largest economy behind the United States, exports increased dramatically in March as factories rushed out shipments before the newest US tariffs went into effect, but an increasing Sino-US trade war has dimmed the outlook for industries and economic development. China's Premier Li Qiang urged exporters to diversify their markets in response to "profound" external changes, and committed to promote increased domestic consumption.

In Europe, the European Central Bank reported that several banks restricted loan availability last quarter and anticipate to tighten credit criteria further as concerns about the economic outlook grow as a result of Trump's tariffs. In Germany, Europe's largest economy, investor sentiment fell in April to its lowest level since Russia invaded Ukraine in 2022, owing to the uncertainty created by US tariffs.