Oil prices saw a modest recovery on Tuesday, rising more than 1% after experiencing a significant drop the previous day, driven by concerns that U.S. tariffs could dampen global demand and potentially trigger a recession. Despite the rebound, analysts warn that the risks of further price declines remain.
At 05:35 GMT, Brent crude futures were up by 72 cents, or 1.1%, reaching $64.93 per barrel, while U.S. West Texas Intermediate (WTI) crude gained 75 cents, or 1.2%, to $61.45 per barrel. This follows a sharp 14% decline in Brent prices and a 15% drop in WTI on Monday, both of which were triggered by U.S. President Donald Trump’s announcement of “reciprocal tariffs” on all imports, adding to market uncertainties.
Warren Patterson, head of commodities strategy at ING, noted that the oil market had been under significant pressure as it adjusted to the potential impact of reduced demand. However, he emphasized that the exact scale of the demand hit remains unclear. “The market has sold off heavily in recent days as it starts to price in a significant demand hit; however, how much of a demand hit we see is still very unclear,” Patterson said.
Despite the uncertainty, oil prices experienced some relief on Tuesday, supported by more stable movement in equity markets. However, analysts at ING caution that the risks are still tilted to the downside, particularly following Trump’s threats of an additional 50% tariff on Chinese goods if China does not lift its 34% retaliatory tariff by Tuesday.
“It’s unlikely that China will reverse the policy. As such, we’re likely to see further escalation, which will only exacerbate growth concerns and worries over oil demand,” ING analysts stated.
On Monday, oil prices dropped 2%, driven by concerns that Trump’s latest tariffs could lead to a global economic slowdown and reduced demand for energy. However, some market participants believe that oil prices may have reached a point where further significant declines are limited.
Trump argues that the tariffs, ranging from 10% on all U.S. imports to targeted rates as high as 50%, are necessary to revive the U.S. industrial sector, which he claims has been weakened by decades of trade liberalization. While many countries are seeking exemptions or reductions in the tariffs, China has announced plans to impose reciprocal tariffs, escalating trade tensions.
China, the world’s second-largest economy, has publicly committed to stabilizing its financial markets and vowed not to succumb to what it considers “blackmail” by the U.S. Should China maintain its stance, the total tariff rate on Chinese imports to the U.S. could reach a staggering 104%. This development could further sour risk sentiment, leading to deeper losses in global stock markets and accelerating the global economic slowdown, according to Tony Sycamore, a market analyst with IG.
As fears over trade tensions grow, the oil market also faces signals of weaker demand. A preliminary Reuters poll indicated that U.S. crude oil and distillate inventories were expected to have increased by about 1.6 million barrels last week, further suggesting a slowdown in demand. Weekly inventory data is due from the American Petroleum Institute later on Tuesday, followed by official data from the U.S. Energy Information Administration on Wednesday.
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