NEW YORK, March 3 (Reuters) – Oil prices fell nearly 2% on Monday, hitting a 12-week low, due to news that OPEC+ will proceed with its planned oil output increase in April. Concerns over U.S. tariffs potentially damaging global economic growth and oil demand also weighed on the market.
Brent crude futures dropped $1.19, or 1.6%, to close at $71.62 per barrel, while U.S. West Texas Intermediate (WTI) crude fell $1.39, or 2.0%, to settle at $68.37. These were the lowest closing prices for Brent since December 6 and WTI since December 9.
Bob Yawger, director of energy futures at Mizuho, noted in a report that crude oil is facing multiple challenges. He pointed to the OPEC+ decision, weak U.S. manufacturing data, peace talks in Ukraine, and U.S. tariffs as factors pressuring the market.
OPEC+, which includes the Organization of the Petroleum Exporting Countries (OPEC) and allies like Russia, confirmed on Monday that it will proceed with its planned oil output increase in April. The group had been cutting production by 5.85 million barrels per day (bpd), which is about 5.7% of global supply, in a bid to stabilize the market since 2022.
In other geopolitical news, Britain reported that several proposals for a ceasefire between Ukraine and Russia had been made, including a one-month truce plan suggested by France. U.S. President Donald Trump also expressed frustration over the ongoing conflict.
Meanwhile, the U.S. is considering offering sanctions relief to Russia in an attempt to improve relations and end the war in Ukraine. Russia, the third-largest oil producer globally, is part of the OPEC+ group.
U.S. Tariffs and Trade Tensions
On the trade front, President Trump is set to decide on Monday what tariffs to impose on Canada and Mexico, following last-minute negotiations over border security and efforts to curb the flow of fentanyl opioids. Trump has threatened to impose 25% tariffs on all imports from both countries, including 10% on Canadian energy products.
Ahead of this decision, Canada’s oilfield drilling and services sector showed signs of slowing. Mexico’s President Claudia Sheinbaum stated her country is prepared for any outcome from the U.S.
In response to U.S. tariffs, China, the world’s second-largest economy, has indicated it is preparing countermeasures, particularly targeting U.S. agricultural exports.
Impact of Tariffs and Economic Growth
U.S. manufacturing showed steady growth in February, but a surge in factory gate prices and longer delivery times for materials raised concerns that tariffs could soon affect production. Analysts also warned that Trump’s tariff plans could increase inflationary pressures, prompting the U.S. Federal Reserve to maintain higher interest rates for longer. This could, in turn, slow economic growth and reduce energy demand.
These economic concerns contributed to a decline in WTI prices, which have fallen by around 10% over the past six weeks. As a result, speculators reduced their net long positions in U.S. crude futures and options to the lowest level since December 2023.
Other U.S. Energy Market Developments
In U.S. energy markets, the start of the April contract as the new front month led to a drop in diesel futures, which hit a nine-week low as the winter heating season drew to a close. On the other hand, gasoline futures rose to a six-month high as the summer driving season approached.
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- OPEC’s Oil Production Dropped Further in January
- OPEC+ Maintains Oil Production Plan, Excludes U.S. EIA from Oversight Sources