The Brent oil futures dropped 0.1% to $76.13 a barrel.
In the latest development in global trade, the oil prices fell on Tuesday morning, primarily due to the trade tensions between China and USA.
Oil prices fell nearly 2% as the USA implemented tariffs on China, even though President Donald Trump has paused the decision to place a 25% tariff on Mexico. He also delayed putting 25% tariffs on its neighbour Canada and a 10% tax on energy imports.
The Brent oil futures dropped 0.1% to $76.13 a barrel. On the other hand, the West Texas Intermediate (WTI) crude oil futures for March delivery increased by 0.1% to $72.44 a barrel on the New York Mercantile Exchange.
Oil prices fluctuated in small ranges, indicating a cautious mood in the market as traders have conflicting narratives about supply and demand.
Oil prices faced challenges when China decided to retaliate against US tariffs by imposing duties on US exports like coal, crude, liquefied natural gas (LNG), and agricultural equipment.
These developments have added an additional degree of uncertainty in the market, as traders are wondering about its possible impact on the global oil demand.
Reports surfaced indicating that Trump is in no hurry to meet Chinese President Xi Jinping, which have raised doubts about whether a deal can be reached before the deadline on February 10.
According to Price Futures Group analyst Phil Flynn, the retaliation from China was the reason for the reduction in the oil prices around the lower end of the trading range, but the ‘maximum pressure’ on Iran caused it to rise again.
Iran is the third largest producer in the Organization of the Petroleum Exporting Countries, also known as OPEC, and extracts almost 3.3 million barrels of oil daily, accounting for nearly 3% of the global production.
This move can create a supply gap in the market, which might again increase oil prices.
The American Petroleum Institute (API) released its most recent weekly crude oil inventory data on Tuesday which shows that there is an increase of 5.025 million barrel for the week ending January 31.
This increase is more than what the market estimated, which had put stocks at 3.170 million barrels and outpaced the 2.860 million barrels the week before.
The consistent increase in crude oil inventories over the past three weeks indicates a possible softening of demand or an excess supply in the market.
Moreover, the Organization of the Petroleum Exporting Countries and its allies also called as OPEC+ will stick to the current plans to gradually increase output starting in April. Markets will closely follow the weekly report from United States Energy Information Administration in the hopes of confirming these patterns.
Trump’s demands for a price cut was rejected by the Organization of the Petroleum Exporting Countries and its allies (OPEC+), which is sticking to its current oil production strategy despite tariffs development.
This decision shows that the group is committed to gradually reducing its output, which will start in April, depending on low inventories and rising demand worldwide.
Since they agreed in 2022, the OPEC+ group has been reducing their production by 5.85 million barrels per day, or around 5.7 percent of the world’s supply. Due to weak demand and rising supply from outside the group, they have postponed the planned output increase from December to April by extending its most recent round of cutbacks through the first quarter of 2025.
Meanwhile, customs data indicate that China imported crude oil from the US, accounting for 1.7% of its total crude imports in 2024.
John Kilduff, a partner at Again Capital, a New York-based hedge fund manager, stated that the Chinese are wise to focus on crude oil and LNG, which will essentially force them out of the US market since adding $5 to $7 a barrel, depending on pricing, is just not competitive.
Sources say that crude stocks increased by 5.03 million barrels in the week ending January 31 and distillate stocks decreased by 6.98 million barrels while gasoline stocks increased by 5.43 million barrels.
