Speculation of a possible end to the war in Ukraine and the easing of U.S. sanctions on Russia increased the downward pressure on crude prices.
SEATTLE (Oil Monster): Is OPEC's iron grip on the oil markets a thing of the past?
Events over the last 24 hours suggest power in the oil market has shifted to Washington from Riyadh - in part because of U.S. President Donald Trump and in part because of longer-term shifts.
Trump on Tuesday announced 25% tariffs on imports from Canada and Mexico, including 10% tariffs on Canadian energy, and also a doubling of duties on Chinese goods to 20%.
In response, the United States' three biggest trading partners embarked on retaliatory measures and global markets went into retreat as the outlook for trade and economic activity darkened. U.S. stocks and bond yields slid, along with oil prices.
News the U.S. would pause military aid to Ukraine following last week's angry clash with President Volodymyr Zelenskiy only added to the markets' nervousness.
Speculation of a possible end to the war in Ukraine and the easing of U.S. sanctions on Russia increased the downward pressure on crude prices.
The headlines from Washington overshadowed what would once have been a blockbuster announcement for oil markets: the Organization of the Petroleum Exporting Countries and allied producing nations, or OPEC+, said they would move forward with the first output increase since 2022.
Starting in April, OPEC+ will over the following 18 months unwind 2.2 million bpd of production cuts.
The group said its decision stemmed from "healthy market fundamentals and the positive market outlook".
That, however, is not reflected in the physical market. The International Energy Agency last month forecast that global supplies will exceed demand - roughly 103 million bpd - this year before any OPEC+ production additions.
So given that Trump has called on Saudi Arabia to lower oil prices, the OPEC+ decision smacks of political considerations. The move can also be interpreted as Saudi Arabia offering Trump room to impose new sanctions on arch-rival Iran, which exported nearly 2 million bpd last year.
Courtesy: www.reuters.com
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