OIL FUTURES: Crude slumps below $70/b amid US tariffs, surprise OPEC+ output boost

Brent crude futures fell below the key psychological level of $70/b in midmorning Asian trade April 4, dragged down by concerns over a demand slowdown following a slew of reciprocal tariffs by the US, while fears of a supply glut were exacerbated by OPEC+'s agreement to a threefold increase in output in May.

At 11:35 am Singapore time (0335 GMT), the ICE June Brent futures contract fell 57 cents/b (0.81%) day over day at $69.57/b, while NYMEX May light sweet crude contract dropped 60 cents/b (0.90%) at $66.35/b from the previous close.

"Crude oil prices fell after the US announced reciprocal tariffs that were higher than the market expected. The average tariff rate is likely to be over 20% if these levies go into effect," ANZ research analysts said.

US President Donald Trump's blanket tariffs of at least 10% have spooked crude prices, as analysts said the levies -- along with potential countermeasures -- could depress trade and chill global oil demand growth, while a surprise OPEC+ decision to accelerate its production increases in May has deepened the selloff, sending ICE front-month Brent futures down $4.81 to settle at $70.14/b in the overnight US trading session April 3.

"We see this level of tariffs and a looming trade war as bearish for the global economy and oil demand and thus bearish for Platts Dated Brent," said S&P Global Commodity Insights analysts in a report.

"In a pessimistic scenario, where trade wars escalate and are compounded by other adverse factors such as geopolitical conflicts and inflation, S&P Global Market Intelligence estimated that global GDP growth would be downgraded by roughly 1%, leading to a reduction in oil/liquids demand growth by half a million b/d in 2025, and year-on-year oil/liquids demand growth of less than 750,000 b/d for 2025."

A second shockwave reverberated through oil markets April 3, with OPEC+ announcing that it will hike output in May far more than previously signaled.

The move by eight countries collectively implementing 2.2 million b/d of voluntary production cuts will see quotas rise by a combined 411,000 b/d in May, OPEC said in a statement released following a meeting to review global market conditions.

"OPEC+ cited healthy fundamentals and a 'positive market outlook' for the move. However, we believe tariff uncertainty clouds the outlook for demand and prices. Possibly, the group feels that the prospect of stricter sanctions against Venezuela and Iran allows them to increase supply," ING analysts said in a note.

Market analysts now expect the US Federal Reserve to announce more rate cuts in 2025 to combat the recessionary pressures caused by Washington's tariffs.

"Financial markets are concerned that steep tariffs have increased recession risks for the US economy. As a result, market pricing for Fed rate cuts has risen. US markets are now pricing in high odds of a 25 basis point rate cut in June, with 91 basis points of easing priced for the year," ANZ research analysts said.

Dubai swaps

The June Dubai swap was pegged at $69.58/b at 11 am Singapore time (0300 GMT) April 4, plunging $2.99/b (4.12%) from the previous April 3 Asian market close.

The May-June Dubai swap intermonth spread was pegged at 94 cents/b, down 10 cents/b day over day, while the June-July Dubai swap intermonth spread was pegged at 80 cents/b, falling 9 cents/b over the same period.

The May Brent-Dubai exchange of futures for swaps was pegged at 14 cents/b, decreasing 12 cents/b from the previous Asian close.