Investing.com - Oil prices climbed in European trading on Tuesday, erasing earlier losses, thanks to a weakening U.S. dollar, although fears that an economic slowdown and an escalating trade war could dent demand capped gains.

Crude prices were nursing steep losses over at least the past three weeks, as uncertainty over U.S. President Donald Trump’s tariff agenda grew after his flip-flopping on tariffs against Canada and Mexico.

Trump’s imposition of 20% tariffs on China -- the world’s biggest oil importer -- also dampened sentiment, as Beijing retaliated with its own measures.

But the biggest weight on oil prices was growing fears of a U.S. economic slowdown, especially as Trump embarks on a major overhaul of trade practices and government policies. Trump in a recent interview declined to rule out the possibility of a recession.

Brent oil futures expiring in May rose 1.1% to $70.03 a barrel, while West Texas Intermediate crude futures increased by 1.1% to $66.40 per barrel by 07:06 ET (11:06 GMT).

US recession fears batter oil markets

Fears of a U.S. economic slowdown grew in recent weeks, especially amid increased disruption from Trump’s agenda. The 47th U.S. President announced a host of measures to slash government spending, reduce federal workers, and hash out new trade agreements through increased tariffs.

Trump on Sunday declined to rule out the possibility of a recession, stating that he expected his agenda to cause some near-term disruption. He repeated his threats that plans for higher trade tariffs will come through in early-April.

Fears of a recession were also furthered by weak readings on retail spending and the labor market for the first two months of 2025. Markets fear that worsening growth in major economies, especially the U.S., will dent oil demand in the coming months, and could especially hurt prices if supply increases.

U.S. inflation data due later in the week is set to provide more cues on the economy.

Weak inflation data from China, released over the weekend, also showed the country was still struggling to shore up local demand. Beijing’s promises of more stimulus support were met with muted enthusiasm in recent weeks.

Increased supply bets weigh on oil

Trump’s plans to bring down energy prices also weighed, after he signed orders to ramp up domestic production. He also called on the Organization of Petroleum Exporting Countries to increase output- a demand the cartel complied with last week.

A mix of slowing demand and rising supplies stand to severely dent oil prices in the coming months.

Focus this week is on the OPEC oil group’s monthly report , due on Wednesday, for more cues on demand forecasts and the cartel’s plans for production.

(Scott Kanowsky contributed reporting.)