(Source Reuters) -Oil prices extended losses on Tuesday following reports that OPEC+ will proceed with a planned output increase in April and as U.S. tariffs on Canada, Mexico and China came into effect, as well as Beijing’s retaliatory tariffs.
Brent futures were down $1.05, or 1.5%, at $70.57 a barrel by 0924 GMT while U.S. West Texas Intermediate (WTI) crude was off 86 cents, or 1.3%, at $67.51.
“The current downward trend in oil prices is primarily driven by OPEC+’s decision to increase output and the introduction of U.S. tariffs,” said Darren Lim, commodities strategist at Phillip Nova.
He said another factor was President Donald Trump’s decision to pause all U.S. military aid to Ukraine following his Oval Office clash with President Volodymyr Zelenskiy last week.
The Organization of the Petroleum Exporting Countries (OPEC) and allies like Russia, known as OPEC+, also decided on Monday to proceed with a planned April oil output increase of 138,000 barrels per day, the group’s first since 2022.
OPEC+’s move took the market by surprise, said Bjarne Schieldrop, chief commodities analyst at SEB.
“The change in the OPEC strategy looks like they are prioritising politics over price. Those politics are likely connected with the wheeling and dealing of Donald Trump” who has called for lower oil prices, Schieldrop said.
U.S. tariffs of 25% on imports from Canada and Mexico took effect at 12:01 a.m. EST (0501 GMT) on Tuesday, with 10% tariffs on Canadian energy, while tariffs on imports of Chinese goods were increased to 20% from 10%.
Analysts expect the tariffs to weigh on economic activity and demand for energy, putting downward pressure on oil prices.
As the U.S. tariffs kicked in on Tuesday, China swiftly retaliated, announcing 10% to 15% hikes to import levies covering a range of American agricultural and food products, and placing 25 U.S. firms under export and investment restrictions.
Further weighing on oil was Trump’s halt of military aid to Ukraine, with some in the market saying the growing distance between the White House and Ukraine could see potential U.S. sanctions relief for Russia, with more oil supply returning to the market.
The pause followed a Reuters report that the White House has asked the State and Treasury departments to draft a list of sanctions that could be eased for U.S. officials to discuss during talks with Moscow, sources have said.
“The perfect storm for crude oil has intensified. Reports that the U.S. has paused military aid to Ukraine are viewed as a precursor to lifting sanctions on Russian oil,” said IG market analyst Tony Sycamore.
“It also comes at the same time as U.S. tariffs on Canada, Mexico and China come into effect, sparking fears of a trade war. Crude oil just cannot take a break at the moment.”
However, Goldman Sachs analysts said in a note on Monday that Russia’s oil flows are constrained more by its OPEC+ production target than sanctions, warning that an easing might not boost them significantly.
The bank also said higher-than-expected crude supply and a demand hit due to softer U.S. activity and tariff escalation posed downside risks to oil price forecasts.
Chinese demand is also lower with a period of refinery maintenance coming up, according to Josh Callaghan, head of crude derivatives at Arrow Energy Markets.
