Market Analysis

Oil Holds Steady Amid OPEC+ Production Boost and Trade Tensions

Amos Simanungkalit · 05 Mar22.3K Views

Image Credit: Reuters

Oil prices stabilized on Wednesday after dropping to multi-month lows the previous day, but still faced downward pressure due to concerns over rising output plans by major producers and the impact of U.S. tariffs on Canada, Mexico, and China.

Brent crude futures rose by 6 cents, or 0.1%, to $71.10 per barrel at 0730 GMT. Meanwhile, U.S. West Texas Intermediate (WTI) crude fell by 24 cents, or 0.4%, to $68.02 per barrel. On Tuesday, both contracts closed near multi-month lows, as market sentiment was weighed down by fears that the tariffs and counter-tariffs could slow economic growth and reduce oil demand.

Yeap Jun Rong, a market strategist at IG, noted that the market is facing a "double whammy" with supply-demand issues and tariff uncertainties negatively impacting global growth and oil demand. OPEC+ is still on track to increase production in April, and there are hopes for a resolution to the Ukraine-Russia conflict, which could lead to the return of Russian oil supplies.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, agreed on Monday to increase production by 138,000 barrels per day from April, marking the first increase since 2022. This is part of a planned gradual return of nearly 6 million barrels per day in cuts made earlier, which accounts for about 6% of global oil demand.

The tariffs, which include a 25% tax on Mexican imports, a 10% tariff on Canadian energy, and a 20% tariff on Chinese goods, took effect on Tuesday. These actions are expected to harm economic growth, leading to a reduction in fuel demand. U.S. President Trump’s trade policies are seen as a risk to job creation, economic growth, and ultimately fuel consumption, especially in the U.S., the world’s largest oil consumer.

Additionally, the Trump administration’s decision to revoke Chevron’s license to operate in Venezuela is expected to risk 200,000 barrels per day of oil supply, further complicating the situation. This move, combined with the tariffs on Canadian and Mexican oil, puts pressure on U.S. refiners to find alternative heavy crude oil supplies.

U.S. crude oil stocks dropped by 1.46 million barrels in the week ending February 28, according to data from the American Petroleum Institute. Investors are awaiting official government data on U.S. stockpiles, which is expected later on Wednesday.