Oil prices fell on Friday and recorded their first monthly decline since November, with US tariff threats exacerbating worries about sluggish Chinese crude demand.
Brent, the benchmark for two thirds of the world’s oil, settled 1.16 per cent lower at $73.18. West Texas Intermediate, the gauge that tracks US crude, closed down 0.84 per cent at $69.76 a barrel.
“US President Donald Trump’s aggressive moves on trade [are] stoking investor apprehensions at a time when traders are already concerned about lacklustre consumption in China,” MUFG said in a research note on Thursday.
On Thursday, Mr Trump said that his planned 25 per cent tariffs on Mexican and Canadian goods will go into effect on March 4, alongside an additional 10 per cent duty on Chinese imports.
The tariffs will be implemented unless the flow of drugs, particularly fentanyl, into the US is stopped or significantly reduced, he said in a Truth Social post.
The US President also reaffirmed that the “April Second Reciprocal Tariff date will remain in full force and effect”.
Canada and Mexico are two of the largest crude suppliers to the US market. Oil exports from Canada are to have a lower tariff of 10 per cent.
This month, China retaliated against US tariffs by imposing a 15 per cent levy on US coal and liquefied natural gas (LNG), and 10 per cent on US crude imports.
Investors are concerned that a renewed trade war between the US and China will create uncertainty and risk dampening global trade, which, in turn, could negatively impact demand for crude oil.
Mr Trump initiated a trade war with China in 2018 during his first stint as president. By the end of 2019, the US had placed tariffs on about $350 billion worth of Chinese goods, and China had responded with tariffs on about $100 billion of US exports.
The “Phase One” trade deal, signed by both countries in January 2020 to de-escalate their trade war, required China to increase its purchases of US goods and services by $200 billion over the following two years.
“Trump-induced tariffs and/or geopolitical uncertainty, are tangible,” MUFG said. “With such an oversupplied outlook, oil prices should fall to drive a rebalancing. However, as long as supply disruption risks keep prices supported in 2025, the surplus will remain unresolved,” the Japanese lender said.
The International Energy Agency expects global oil supply to rise by 1.6 million bpd to 104.5 million bpd this year, while global oil demand growth is projected to average 1.1 million bpd.
“Despite many expecting the oil market to flip into a surplus, the structure of the crude futures curve is still downward sloped,” said Giovanni Staunovo, strategist at UBS. “This suggests the oil market remains tight, with Opec+ aiming to keep the market in balance,” he said in a research note earlier this week.
Opec+, the alliance of oil producing countries, which includes Russia, has withheld 5.86 million bpd of supply from the market, including voluntary output cuts of 2.2 million bpd that will be gradually eased, starting in April.
Opec+ is considering whether to proceed with its planned oil output increase in April or maintain current levels, as its members grapple with assessing the global supply outlook amid new US sanctions on Venezuela, Iran, and Russia, Reuters reported on Thursday, citing sources.
