LONDON: Oil prices extended losses on Monday, falling more than 2% as escalating trade tensions between the United States and China stoked fears of a recession that would reduce demand for crude while OPEC+ readies a supply increase.
The Brent and WTI benchmarks both dropped to their lowest since April 2021.
Brent futures were down $1.61, or 2.5%, to $63.97 per barrel at 1301 GMT and U.S. West Texas Intermediate crude futures were down $1.64, or 2.7%, at $60.35.
Oil plunged by 7% on Friday as China ramped up tariffs on U.S. goods, escalating a trade war that has led investors to price in a higher probability of recession. Last week, Brent and WTI lost 10.9% and 10.6%, respectively.
“The uncertainty around tariff policy – that’s still very present. You have a number of Wall Street banks slashing economic prospects and calling out much greater probabilities of recession,” said Harry Tchilinguirian at Onyx Capital Group. “That’s really what’s driving sentiment.”
Goldman Sachs on Monday forecast a 45% chance of recession in the U.S. over the next 12 months and made downward revisions to its oil price projections. Citi and Morgan Stanley also cut their Brent outlooks. JPMorgan said last week that it sees a 60% probability of recession in the U.S. and globally.
Saudi Arabia on Sunday announced sharp cuts to crude oil prices for Asian buyers, dropping the price in May to the lowest level in four months.
“It’s a demonstration of the belief that tariffs will hurt oil demand,” said PVM analyst Tamas Varga. “It goes to show the Saudis, just like every man and his dog, expect the supply and demand balance to be affected and they are forced to cut their official selling prices.”
Imports of oil, gas and refined products were given exemptions from Trump’s sweeping new tariffs, but the policies could stoke inflation, slow economic growth and intensify trade disputes, weighing on oil prices.
Federal Reserve Chair Jerome Powell said on Friday that Trump’s new tariffs were “larger than expected” and the economic fallout was likely to be so, too.
Adding to the downward momentum, the OPEC+ group comprising the Organization of the Petroleum Exporting Countries and its allies decided to advance plans for output increases.
The group now aims to return 411,000 barrels per day to the market in May, up from the previously planned 135,000 bpd.
“This potential influx of supply, reversing cuts maintained over the past two years, represents a major shift in market dynamics and acts as a significant headwind for prices,” said Sugandha Sachdeva, founder of New Delhi-based research firm SS WealthStreet.
At the weekend, OPEC+ ministers emphasised the need for full compliance with oil output targets and called for over-producers to submit plans by April 15 to compensate for pumping too much.
Demand is already looking weaker, with crude imports softening in Asia in the first quarter, data compiled by LSEG Oil Research shows.
