"Oil set for biggest weekly drop since October on tariff uncertainty, supply gains"

Oil prices are on track for their biggest weekly drop since October, as tariff uncertainties and supply gains weigh heavily on the market. The recent imposition of tariffs by the U.S. on Mexico and Canada, along with the threat of further tariffs on China, has created significant market volatility. This uncertainty, coupled with the decision by OPEC+ to start unwinding voluntary cuts from April, has led to a bearish sentiment in the oil market.

The decision by OPEC+ to increase production starting from April 2025 has several potential implications for global oil prices and market stability. Firstly, the increase in production by OPEC+ members will add more oil to the global market, which could lead to an oversupply situation. This is because the global oil supply is already projected to increase by 1.6 mb/d to 104.5 mb/d in 2025, with non-OPEC+ producers accounting for the bulk of the increase. The additional supply from OPEC+ could exacerbate this situation, putting downward pressure on oil prices. As Citi analysts noted, "The OPEC+ decision to start increasing production again is a materially bearish development, loosening markets at a time that U.S. macro data are starting to soften." This sentiment was reflected in the market, with Brent crude trading at $70.87 per barrel and West Texas Intermediate at $67.75 per barrel, both down from their opening prices.

Secondly, the decision to increase production could also impact market stability. The OPEC+ alliance has historically played a crucial role in stabilizing oil markets by adjusting production levels to balance supply and demand. However, the decision to increase production in the face of potential economic slowdowns and trade wars could be seen as a risk to market stability. As David Fyfe, chief economist of Argus Media, noted, "Analysts were thinking they would surely defer the increases given the macroeconomic threat from tariffs." The decision to proceed with the increase despite these threats could lead to increased volatility in oil prices, as market participants try to gauge the impact of the increased supply on demand.

Thirdly, the decision to increase production could also have implications for the U.S. shale industry. The U.S. is one of the leading non-OPEC+ producers, and the increase in production by OPEC+ could put pressure on U.S. shale producers to increase their output to maintain market share. However, this could also lead to increased competition and potentially lower prices for U.S. shale producers, which could impact their profitability. As the IEA's Oil 2024 report noted, "The United States alone is poised to account for 2.1 million barrels per day of non-OPEC+ gains, while Argentina, Brazil, Canada and Guyana contribute a further 2.7 million barrels per day." This highlights the potential for increased competition between OPEC+ and non-OPEC+ producers in the coming years.

Finally, the decision to increase production could also have implications for global oil demand. The increase in supply could lead to lower oil prices, which could in turn stimulate demand. However, this could also lead to increased competition between OPEC+ and non-OPEC+ producers, which could impact the profitability of both groups. As the IEA's Oil 2024 report noted, "Global oil demand is still forecast to be 3.2 million barrels per day higher in 2030 than in 2023 unless stronger policy measures are implemented or changes in behaviour take hold." This highlights the potential for increased competition between OPEC+ and non-OPEC+ producers in the coming years, which could impact global oil demand.



Geopolitical tensions and trade disputes are significant factors influencing the future demand for oil and the overall economic outlook. According to the IEA Oil Market Report (OMR), the global oil market is highly sensitive to geopolitical events and trade policies. For instance, new US sanctions on Russia and Iran in early 2025 roiled markets, causing an upswing in prices due to fears of potential supply disruptions. However, these sanctions have yet to materially impact global oil supply, as Iranian crude oil exports are only marginally lower and Russian flows continue largely unaffected. This highlights the complex interplay between geopolitical tensions and oil supply dynamics.

Trade disputes, such as the emerging trade war between the United States and its partners, also play a crucial role. The prospect of higher US tariffs raised fears of an emerging trade war, which could impact the pace of oil demand growth. For example, the IEA report notes that "anxiety over the impact of new sanctions on Russia and Iran, with fears of potential supply disruptions, triggered an upswing in prices in early January." This sentiment quickly shifted to renewed concerns over the world economy amid emerging trade wars, leading to a fall in ICE Brent future prices from around $82/bbl to $75/bbl as international trade tensions escalated.

The economic outlook is further complicated by the impact of trade disputes on global economic growth. The IEA report mentions that "market sentiment quickly shifted to renewed concerns over the world economy amid emerging trade wars and its impact on the pace of oil demand growth." This shift in sentiment is reflected in the decline in ICE Brent future prices, which fell back to around $75/bbl as international trade tensions escalated. The report also notes that "the prospect of higher US tariffs raising fears of an emerging trade war" contributed to the reversal of gains in oil prices.

In summary, geopolitical tensions and trade disputes can significantly influence the future demand for oil and the overall economic outlook. These factors create uncertainty in the oil market, affecting supply and demand dynamics and impacting global economic growth. The IEA report provides specific examples and data to support this analysis, highlighting the complex interplay between geopolitical events, trade policies, and oil market dynamics.