Oil prices extended losses on Tuesday following reports that OPEC+ will go ahead with a planned output increase in April and as US tariffs on Canada, Mexico and China come into effect, as well as Beijing's retaliatory tariffs.

Brent crude futures were down $1.05, or 1.5%, at $70.57 a barrel by 0924 GMT while US West Texas Intermediate (WTI) crude was down 86 cents, or 1.3%, at $67.51.

"The current downtrend in oil prices is mainly driven by the decision by OPEC+ to increase production and the imposition of US tariffs," said Darren Lim, commodity strategist at Phillip Nova.

He said another factor was President Donald Trump's decision to halt all US military aid to Ukraine after his Oval Office clash with President Volodymyr Zelenskiy last week.

The Organization of the Petroleum Exporting Countries (OPEC) and allies such as Russia, known as OPEC+, also decided on Monday to go ahead with a planned increase in oil output in April by 138,000 barrels per day, the group's first since 2022.

The OPEC+ move caught the market by surprise, said Bjarne Schieldrop, chief commodities analyst at SEB.

"The change in OPEC's strategy looks like they are prioritizing politics over prices. The politics are probably related to Donald Trump's efforts" who has called for lower oil prices, Schieldrop said.

U.S. tariffs of 25% on imports from Canada and Mexico went into effect at 12:01 a.m. EST (0501 GMT) on Tuesday, with a 10% tariff on Canadian energy, while tariffs on Chinese imports were raised to 20% from 10%.

Analysts expect the tariffs to weigh on economic activity and energy demand, pressuring oil prices.

When U.S. tariffs went into effect on Tuesday, China quickly retaliated, announcing a 10% to 15% increase in import duties covering a range of American agricultural and food products, and placing 25 U.S. companies under export and investment restrictions.

Further weighing on oil was Trump's halt in military aid to Ukraine, with some in the market saying the growing distance between the White House and Ukraine could lead to potential U.S. sanctions relief for Russia, with more oil supply returning to the market.

The pause followed a Reuters report that the White House had asked the State and Treasury departments to draft a list of sanctions relief for U.S. officials to discuss during talks with Moscow, sources said.

"A perfect storm for crude has developed. Reports that the U.S. has halted military aid to Ukraine are seen as a sign of sanctions relief on Russian oil," said IG market analyst Tony Sycamore.

"It also coincides with U.S. tariffs on Canada, Mexico and China, which are fueling fears of a trade war. Crude can't take a break now."

However, Goldman Sachs analysts said in a note on Monday that Russian oil flows are more constrained by OPEC+ production targets than sanctions, warning that easing them is unlikely to significantly increase them.

The bank also said higher-than-expected crude supplies and hit to demand due to weaker U.S. activity and tariff escalation pose downside risks to its oil price outlook. (Newsmaker23)

Source: Investing.com