Oil prices fall 2% to 2-week low as trade war concerns dampen demand outlook

By Scott DiSavino

NEW YORK (Reuters) - Oil prices fell about 2% to a two-week low on Tuesday as investors braced for OPEC+ to boost output and worried U.S. President Donald Trump's tariffs would hit the global economy and slow demand for the fuel.

Brent crude futures fell by $1.61, or 2.4%, to settle at $64.25 per barrel. U.S. West Texas Intermediate (WTI) crude dropped by $1.63, or 2.6%, to settle at $60.42.

Both benchmarks posted the lowest settlement since April 10.

Trump's aggressive tariffs on imports into the U.S. have made it probable the global economy will slip into recession this year, according to a majority of economists in a Reuters poll.

China, hit with the steepest tariffs, has responded with its own levies against U.S. imports, stoking a trade war between the top two oil-consuming nations. Analysts have sharply lowered their oil demand and price forecasts.

"Trade between China and the U.S. has slowed to a semi-embargo type flow. Every day that passes without some kind of deal with any of our significant trade partners brings us one day closer to a global demand destruction situation," Bob Yawger, director of energy futures at Mizuho, said in a note.

The U.S. trade deficit in goods widened to a record high in March as businesses ramped up efforts to bring in merchandise ahead of Trump's sweeping tariffs, suggesting trade was a large drag on economic growth in the first quarter.

The fallout from Trump's trade war reverberated through the corporate world on Tuesday, as delivery giant UPS said it would cut 20,000 jobs to lower costs. Auto maker General Motors pulled its outlook and pushed its investor call to Thursday pending possible changes to trade policy.

Trump was set to soften the blow of his auto tariffs through an executive order mixing credits with relief from other levies on parts and materials, after automakers pressed their case with the administration.

UK oil major BP reported a deeper-than-expected 48% drop in net profit to $1.4 billion on weaker refining and gas trading.

The energy market awaits earnings from U.S. oil majors Exxon Mobil and Chevron this week.

PRODUCTION RISING

Several members of the Organization of the Petroleum Exporting Countries and allies in OPEC+ will suggest an acceleration of output hikes for a second straight month in June, sources told Reuters last week.

"Another production hike from OPEC+ could not happen at a worse time when sentiment is already weak, and with Kazakhstan not showing much interest in reducing production," said Saxo Bank analyst Ole Hansen.

OPEC+ member Kazakhstan increased oil exports by 7% year-on-year in January-March thanks to a supply boost via the Caspian pipeline, Reuters calculations based on official data and sources showed on Tuesday.

U.S. OIL INVENTORIES

U.S. oil inventory data from the American Petroleum Institute trade group was due on Tuesday and from the U.S. EIA on Wednesday. [EIA/S] [API/S]

Analysts forecast energy firms added about 0.5 million barrels of oil to U.S. stockpiles during the week ended April 25.

If correct, that would be the fifth weekly build in a row and compares with an increase of 7.3 million barrels during the same week last year and an average build of 3.2 million barrels over the past five years (2020-2024).

(Reporting by Scott DiSavino in New York, Enes Tunagur in London and Emily Chow in Singapore; Editing by Sonali Paul, Saad Sayeed, Tomasz Janowski, Joe Bavier, Rod Nickel and David Gregorio)