Oil extends losses on new US tariffs and Opec+ supply boost

Producers' group will proceed with a 'gradual and flexible' unwinding of voluntary production cuts of 2.2 million barrels per day

Containers at the port in Ensenada, Baja California state in Mexico. Trade tariffs imposed by the US on Mexico and Canada are expected to hit economic growth. AFP

Oil prices fell further on Wednesday, adding to a roughly 3 per cent drop in prices so far this week, as the market reacted to new US tariffs that could hinder economic growth and Opec+'s plan to boost output starting next month.

Brent, the benchmark for two thirds of the world’s oil, was trading 3.03 per cent lower at $68.89 a barrel at 7.46pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 3.63 per cent at $65.78 a barrel.

A planned 25 per cent US tariff on Mexican and Canadian goods went into effect on Tuesday, alongside an additional 10 per cent duty on Chinese imports.

Canada and Mexico are two of the largest crude suppliers to the US market. Oil exports from Canada face a lower tariff of 10 per cent.

“In the near term, US tariff news is likely to keep oil prices volatile, with further potential temporary price setbacks,” Giovanni Staunovo, UBS strategist, said in a research note on Tuesday.

The prospect of Opec+ adding more barrels to the market in the coming weeks has also weakened crude prices this week.

On Monday, the alliance of producers said it would proceed with a “gradual and flexible” unwinding of voluntary production cuts of 2.2 million barrels per day starting on April 1, adding 138,000 bpd per month until September 2026.

The planned return of production cuts – originally made by eight Opec members, including Saudi Arabia, Russia, the UAE, and Iraq in November 2023 – had been pushed back three times amid concerns about growing supply in the market.

Before the announcement, there had been growing speculation in the market that Opec+ would delay plans to increase production amid uncertainty on the impact of tariffs and US sanctions on Russia, Iran and Venezuela.

Analysts said the move could further exacerbate an oil market glut expected this year. “Fundamentally, we see the oil market heading into a surplus this year. The market mood is cooling from overly bullish readings, and the downswing in sentiment should add to pricing pressures in the near term,” said Norbert Rücker, head of economics and next generation research at Julius Baer.

The International Energy Agency has forecast a 1.6 million bpd increase in crude supply this year, far exceeding the projected demand growth of 1.1 million bpd.

“The announcement from Opec+ will be negative for oil in the short term, particularly as it coincided with plans from the US government that it will impose tariffs on Canada, Mexico and China and could follow up with plans for wider-ranging reciprocal tariffs or duties on EU goods,” Emirates NBD said in a research note on Tuesday.

US President Donald Trump has announced plans to impose reciprocal tariffs on April 2 against countries he believes are treating the US unfairly.

The US is the world’s second-largest trading nation, behind China, with more than $7 trillion in exports and imports of goods and services.