Oil Prices Decline for Third Consecutive Day Amid OPEC+ Output Increase and Escalating Trade Tensions
Oil prices fell for a third consecutive session on Wednesday, as concerns about an increase in output from OPEC+ and the escalating trade tensions between the US and several key countries weighed on market sentiment.
Brent crude futures dropped 45 cents, or 0.63%, settling at $70.59 per barrel, while US West Texas Intermediate (WTI) crude declined by 74 cents, or 1.08%, to $67.52 per barrel.
The dip in oil prices followed a challenging day for the market, where tariffs imposed by the Trump administration on Canada, China, and Mexico sparked retaliatory actions from these countries. Analysts have expressed concerns that the escalating trade conflict could slow economic growth and reduce demand for oil. Ashley Kelty, an analyst at Panmure Liberum, highlighted that the tariffs and subsequent counter-tariffs have raised fears about their impact on energy demand as global economic growth could be stunted.
In addition to the trade tensions, the market is also grappling with news from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, who announced plans to increase oil production starting in April. The OPEC+ group has agreed to increase output by 138,000 barrels per day, marking the first rise in production since 2022. This increase is part of a gradual plan to reverse nearly 6 million barrels per day of cuts made in response to the global pandemic, which had significantly reduced oil demand.
Despite the modest output increase, analysts remain cautious, with some suggesting that OPEC+ may continue to gradually raise production, depending on market conditions. UBS analyst Giovanni Staunovo pointed out that the group has reiterated that production will only be increased if the market can absorb it. Analysts at Morgan Stanley also noted that while the cuts could be partially unwound, there is uncertainty over how much further OPEC+ will increase production in the coming months.
Further complicating the outlook for oil, the Trump administration also announced the end of a license that had allowed US oil company Chevron to operate in Venezuela and export oil from the country. This decision could put 200,000 barrels per day of supply at risk, adding additional pressure on global oil markets.
Meanwhile, US crude oil inventories saw a decrease of 1.46 million barrels for the week ending February 28, according to the American Petroleum Institute, though investors are awaiting government data later on Wednesday to gain further insight into the state of US stockpiles.
The combination of OPEC+ output increases and escalating trade tensions has led to a bearish sentiment in the oil market, raising concerns about both economic slowdown and its potential impact on energy demand. As the situation unfolds, investors will continue to monitor the evolving trade dynamics and OPEC’s production decisions for further clues on the future direction of oil prices.
