Cargo ship in Qingdao, China
A cargo ship carrying crude oil arrives at the port of Qingdao, China. (Nurphoto | Nurphoto | Getty Images)

Oil prices experienced a sharp decline Tuesday, driven by investor apprehension over potential increases in oil production by OPEC+ nations and ongoing concerns about the impact of U.S. trade policies on the global economy.

Crude Oil Futures Take a Hit

Brent crude futures (LCO.1) settled at $64.25 per barrel, a decrease of $1.61, or 2.44%. West Texas intermediate (WTI) crude (CL.1) fell $1.63, or 2.63%, to close at $60.42 per barrel.

Trade Tensions Weigh on Demand

Aggressive tariffs imposed by the U.S.have raised the probability of a global recession this year, according to a Reuters poll of economists.China, facing the brunt of these tariffs, has retaliated with its own levies on U.S. goods, escalating the trade war between the world’s two largest oil-consuming nations. This has led analysts to significantly reduce their forecasts for oil demand and prices.

Did you know? Trade wars can significantly impact global oil demand due to disruptions in supply chains and economic slowdowns.

Bob Yawger, director of energy futures at Mizuho, noted the severity of the situation, stating, Trade between China and the U.S. has slowed to a semi-embargo type flow.Every day that passes without some kind of deal with any of our significant trade partners brings us one day closer to a global demand destruction situation.

U.S. Trade Deficit Soars

The U.S. trade deficit in goods reached a record high in March as businesses accelerated imports ahead of the implementation of tariffs. This surge suggests that trade significantly hampered economic growth during the first quarter.

Corporate Fallout from Trade War

The repercussions of the trade war are already being felt across the corporate landscape.UPS announced plans to cut 20,000 jobs to reduce costs. General Motors has delayed its investor call to Thursday, pending potential adjustments to trade policy.

Pro Tip: Monitor corporate earnings reports for insights into how trade policies are affecting specific industries and the broader economy.

The Trump administration is reportedly planning to ease the impact of auto tariffs through an executive order combining credits with exemptions from other levies on parts and materials, following pressure from automakers.

BP Net Profit Declines Sharply

In other energy news, UK-based BP reported a deeper-then-expected 48% drop in net profit, falling to $1.4 billion,due to weaker refining and gas trading performance.

Eyes on Exxon Mobil and Chevron Earnings

The energy market is now focused on the upcoming earnings releases from U.S. oil giants Exxon Mobil and Chevron later this week.

OPEC+ Considers Further Output Increases

Several members of OPEC+ are considering accelerating output hikes for the second consecutive month in June, according to sources cited by Reuters.

Ole Hansen, an analyst at Saxo Bank, cautioned against the potential impact of increased production: Another production hike from OPEC+ could not happen at a worse time when sentiment is already weak, and with Kazakhstan not showing much interest in reducing production.

Kazakhstan’s oil exports increased by 7% year-on-year between January and March, driven by increased supply through the Caspian pipeline, according to Reuters calculations based on official data.

U.S. Oil Inventory Data in Focus

U.S. oil inventory data from the American Petroleum Institute (API) was released Tuesday, with the Energy Information Administration (EIA) data due on Wednesday.

Analysts anticipate that energy firms added approximately 0.5 million barrels of oil to U.S.stockpiles during the week ending April 25.If the forecast is correct, it would mark the fifth consecutive week of increases, contrasting with a surge of 7.3 million barrels during the same week last year and an average build of 3.2 million barrels over the past five years (2020-2024).