Oil prices dip as trade war fears and supply worries loom

[WORLD] Oil prices fell on Tuesday as traders braced for reciprocal tariffs that US President Donald Trump is expected to announce on Wednesday, potentially intensifying a global trade war. However, Trump's threats to impose secondary tariffs on Russian oil and attack Iran exacerbated supply concerns, limiting losses. Brent futures fell 28 cents, or 0.37%, to US$74.49 per barrel. The session high was above US$75 per barrel. US West Texas Intermediate crude futures dropped 28 cents, or 0.39%, to $71.20. On Monday, the contracts reached five-week highs.

The uncertainty surrounding Trump’s tariff announcement comes amid already fragile market sentiment, with investors weighing the potential ripple effects on global trade flows. Analysts note that any escalation in trade restrictions could further complicate supply chains, particularly for energy markets that rely heavily on cross-border transactions. The International Energy Agency (IEA) recently warned that prolonged trade tensions could lead to increased volatility in commodity prices, adding another layer of risk for traders.

The White House provided no information regarding the size or extent of the tariffs that President Trump has announced will be imposed on Wednesday.

"The market is getting a little jittery with less than 24 hours to go," said Bob Yawger, director of energy futures at Mizuho. "We may lose some Mexican, Venezuela and Canadian supplies, but there is definitely a chance that demand destruction could outpace those barrels," according to him.

Geopolitical concerns continue to be a primary driver of oil price swings, with the protracted stalemate between Russia and Western nations over Ukraine casting a shadow over energy markets. The prospect of future penalties or supply disruptions has kept traders on edge, especially as Europe seeks alternate energy supplies to reduce its reliance on Russian crude. This dynamic has increased unpredictability in an already tight global supply situation.

A poll of 49 economists and analysts in March predicted that oil prices will continue under pressure this year due to US sanctions and economic slowdowns in India and China, as Opec+ increased supplies.

Slower global growth would reduce gasoline demand, perhaps offsetting any fall in supply owing to Trump's threats."While stricter sanctions on Iran, Venezuela and Russia could constrain global supply, the US tariffs are likely to dampen global energy demand and slow economic growth, which in turn will affect oil demand further out on the curve," SEB analyst Ole Hvalbye said. "As a result, betting on a clear direction for the market has been – and remains – challenging."

In addition to trade concerns, market participants are closely monitoring the Federal Reserve’s monetary policy stance, as higher interest rates could strengthen the US dollar and make oil more expensive for foreign buyers. A stronger dollar has historically weighed on crude prices, and with the Fed signaling further rate hikes this year, the oil market faces additional headwinds beyond geopolitical and trade-related risks.

On Sunday, Trump suggested he would levy secondary tariffs of 25% to 50% on Russian oil buyers if Moscow sought to stymie attempts to end the conflict in Ukraine. Tariffs on oil importers from Russia, the world's second largest oil supplier, would disrupt global supplies and harm Moscow's main consumers, China and India. Trump threatened Iran with comparable taxes and bombings if Tehran did not reach an agreement with the White House on its nuclear program.

Prices surged when Russia forced Kazakhstan's main oil export terminal to close two of its three moorings due to an impasse between Kazakhstan and Opec+, the Organization of the Petroleum Exporting Countries and its allies led by Russia, over excess output.

As a result, two industry sources told Reuters that Kazakhstan will be forced to reduce oil output. Another source stated that the repair work at the Caspian Pipeline Consortium terminal will take more than a month.

The disruption in Kazakhstan’s exports highlights the ongoing challenges within Opec+ as member countries navigate production quotas and internal disagreements. Kazakhstan’s compliance with output cuts has been inconsistent, raising questions about the group’s ability to maintain cohesion amid diverging national interests. This latest development could further strain relations within the alliance, potentially impacting future production decisions.

The market will be watching the Opec+ ministerial committee meeting on April 5 to assess policies. According to Reuters, Opec+ planned to increase output by 135,000 barrels per day in May. Opec+ agreed to a comparable increase in production for April.

Meanwhile, five analysts questioned by Reuters projected that US crude stocks declined by an average of 2.1 million barrels in the week ending March 28.