Oil prices fell on Tuesday from their highest level in two weeks, affected by concerns over rising supplies, despite earlier optimism regarding the easing of the U.S.-China trade war after both countries temporarily reduced tariffs.
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Brent crude futures dropped by 22 cents, or 0.3%, to $64.74 per barrel by 02:48 GMT. U.S. West Texas Intermediate (WTI) crude declined by 18 cents, or 0.3%, to $61.77.
Both benchmark crudes had closed up by about 1.5% on Monday, marking their highest closing since April 28. These gains come during a volatile period for global oil markets.
The United States and China agreed to a significant reduction in tariffs for at least 90 days, which led to a sharp rise in Wall Street stocks, the U.S. dollar, and crude oil prices on Monday.
Analysts at ING stated in an email to clients: “While the easing of trade tensions between China and the U.S. is helpful, there is still a lot of uncertainty about what will happen over the next 90 days. This uncertainty may continue to create headwinds for oil demand.”
However, the underlying divisions that led to the dispute remain unresolved, including the U.S. trade deficit with China and President Donald Trump’s demand for more action from Beijing to combat the U.S. fentanyl crisis.
Markets are also focusing on increased supply as a key factor behind weaker oil prices.
ING analysts added: “Although demand has been a major concern for the oil market, the increased supply from OPEC+ means the oil market is likely to remain well supplied for the rest of the year.” They noted that the adequacy of supply will depend on whether OPEC+ follows through with its plans to significantly increase output in May and June.
The Organization of the Petroleum Exporting Countries (OPEC) has boosted oil production more than expected since April, and May output is likely to rise by 411,000 barrels per day.
Meanwhile, analysts’ opinions are divided on U.S. crude oil inventories. A Reuters poll indicated that U.S. crude stockpiles likely fell last week, but Walter Chancellor, energy strategist at Macquarie, expects a rise in U.S. crude inventories by 7.6 million barrels.
