Supply and Demand Fears Continue to Drag Oil Prices Lower

Oil prices slipped in early Asian trade on Monday, as a combination of burgeoning supply concerns and escalating U.S.–China trade tensions weighed on sentiment.

At the time of writing, Brent crude futures had dropped 0.29% to $61.11 while WTI was down 0.35% at $57.34. The continued drop comes on the heels of a third consecutive weekly decline for both benchmarks, with more than a 2% fall in each last week. Concerns about demand softening and a looming supply overhang are the key factors dragging prices lower, with easing geopolitical risk also weighing on oil.

The International Energy Agency recently raised its forecast for global oil supply growth and warned of a supply surplus in 2026. At the same time, OPEC+ has been unwinding its output cuts and the Gaza ceasefire has reduced concerns of a major supply disruption in the Middle East.

One Tokyo-based analyst, Toshitaka Tazawa of Fujitomi Securities, summed up the situation saying, “Concerns about oversupply from increased production by oil-producing nations, coupled with fears of an economic slowdown stemming from escalating U.S.–China trade tensions, are fuelling selling pressure.”.

Tensions between the U.S. and China have flared recently, with each side imposing extra port fees on cargo shipments – moves that could slow freight flows and undermine global growth. A prolonged decoupling of the two largest energy consumers could sharply reduce oil demand.

At the same time, U.S. oil output ticked up last week to hit another record high, showing even more supply coming online.

While U.S. pressure on countries buying Russian crude could push prices lower, there is plenty of uncertainty over whether that buying will slow down or not.

By Charles Kennedy for Oilprice.com

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