Oil prices experienced a modest recovery in early trading. However, downside risks persist due to potential further tariff increases by the US on Chinese goods, contingent on China’s removal of its existing retaliatory tariffs. Analysts at ING, Warren Patterson and Ewa Manthey, anticipate continued escalation given the unlikelihood of China reversing its policy, which would amplify concerns regarding economic growth and oil demand.
The recent OPEC+ decision to increase supply is expected to widen the Brent-Dubai spread, a trend already observed. This widening is attributed to increased OPEC+ output coupled with the impact of tariffs on Asian economies.
The decline in crude oil prices since April 2nd suggests the market is increasingly pricing in recessionary risks. This sell-off may prompt OPEC+ to reconsider its recently announced supply increase for May. Should downward pressure on prices continue, OPEC+ may pause or even reverse its supply adjustments. Saudi Arabia, requiring approximately US$90/bbl to balance its budget, likely seeks to avoid a significant divergence between its fiscal breakeven point and prevailing market prices.
