Oil prices stagnate amid US-China trade war and demand concerns

[WORLD] Oil prices were steady in early trade on Monday, with concerns that the developing trade war between the United States and China will slow global economic growth and reduce fuel demand. Brent crude futures rose 4 cents, or 0.06%, to $64.80 per barrel at 0009 GMT. US West Texas Intermediate oil futures were trading at $61.53 a barrel, up 3 cents or 0.05%.

The muted price movement reflects a cautious market stance as traders weigh the immediate impact of tariffs against broader economic risks. Analysts note that while supply constraints—such as OPEC+ production cuts and geopolitical tensions—could buoy prices, weakening demand forecasts in major economies are creating a tug-of-war in oil markets.

Beijing raised its tariffs on US imports to 125% on Friday, responding to President Donald Trump's decision to boost taxes on Chinese goods and escalating the stakes in a trade war that threatens to disrupt global supply chains.

The retaliatory measures have particularly targeted U.S. energy exports, including liquefied natural gas (LNG), which had seen growing demand from China in recent years. This escalation risks further disrupting global energy trade flows, with Asian buyers potentially seeking alternative suppliers in Qatar and Australia to offset the shortfall.

Trump exempted smartphones, computers, and some other electronics largely imported from China from steep tariffs on Saturday, but U.S. Commerce Secretary Howard Lutnick said on Sunday that critical technology products from China, as well as semiconductors, would face separate new duties within the next two months. The trade conflict has heightened concerns that unsold exports would continue to drive local Chinese prices lower.

Meanwhile, the International Energy Agency (IEA) warned in its latest monthly report that prolonged trade tensions could shave 0.5% off global oil demand growth in 2024. The agency revised its forecast downward, citing slower industrial activity and reduced consumer spending in key markets—a scenario that could force producers to reconsider output levels ahead of the next OPEC+ meeting in June.

"China's inflation numbers revealed an economy that is unprepared for a trade war. Consumer prices declined for the second month in a row in year-on-year terms, while producer prices continued their 30% decline," Moody's Analytics said in a weekly report, citing to data released on April 10.

As industries prepare for a probable drop in demand, US energy firms decreased oil rigs by the most in a week since June 2023, cutting the overall oil and natural gas rig count for the third week in a row, according to Baker Hughes.

The rig count decline underscores growing caution among shale producers, who are scaling back investments amid volatile price signals. However, some analysts suggest that operational efficiencies and improved breakeven costs could cushion the sector from a severe downturn, even if demand softens further.

U.S. Energy Secretary Chris Wright said on Friday that as part of Trump's plan to put pressure on Tehran over its nuclear program, the US might halt Iran's oil shipments, thereby raising oil prices. Both countries held "positive" and "constructive" discussions in Oman on Saturday and decided to meet again next week in a dialogue to handle Tehran's escalating nuclear programme, officials said over the weekend.

Geopolitical risks remain a wildcard for oil markets, with tensions in the Middle East and potential supply disruptions offsetting some of the bearish demand sentiment. Traders are closely monitoring whether renewed U.S. sanctions on Iran could tighten global supplies, particularly if other OPEC members fail to compensate for lost barrels.