Jamie Spencer
Oil Prices Drop Amid Escalating Trade War Tensions
Oil prices plunged nearly 8% on Friday, heading toward their lowest close since the middle of the pandemic in 2021, as China intensified tariffs on U.S. goods, significantly escalating the global trade war. China announced plans to impose a 34% tariff on all U.S. goods starting April 10, a move that raised fears of a global economic slowdown. This follows President Trump’s decision to impose the highest tariff barriers the U.S. has seen in over a century, prompting retaliatory actions from nations worldwide.
Global Commodities and Markets Take a Hit
Following the tariff escalation, commodities such as natural gas, soybeans, and gold also saw sharp declines, while global stock markets tumbled. JP Morgan has increased its prediction of a global recession by year-end to 60%, up from a previous 40%. Brent crude futures fell by $4.68, or 6.67%, to $65.46 a barrel, while U.S. West Texas Intermediate crude dropped $5.07, or 7.6%, to $61.88. Both benchmarks hit their lowest levels in four years, heading toward their largest weekly losses in over two years.
Price Predictions and Market Reactions
Scott Shelton, an energy specialist at United ICAP, noted, “This is probably close to fair value in crude until we get some sort of indication of how much demand has actually been reduced.” He warned that WTI could end up in the mid to high $50s in the near term due to reduced demand caused by the escalating trade war. The volatile market conditions are creating a sense of uncertainty, with prices swinging drastically in response to evolving geopolitical tensions.
Fed’s Powell Warns of Economic Fallout
Federal Reserve Chair Jerome Powell also weighed in, describing Trump’s new tariffs as “larger than expected” and warning of their potentially serious economic fallout, including higher inflation and slower growth. Powell’s remarks suggest that the U.S. central bank faces a difficult set of decisions moving forward, with the trade war adding further complexity to the nation’s economic policy challenges.
OPEC+ Increases Output Plans Amid Market Pressure
Compounding the downward pressure on oil prices, the Organization of the Petroleum Exporting Countries and its allies in OPEC+ announced an increase in oil output plans. The group now aims to return 411,000 barrels per day (bpd) to the market in May, a significant jump from the previously planned 135,000 bpd. Additionally, the Caspian Pipeline Consortium (CPC) faced a legal victory in Russia, averting a potential disruption in Kazakhstan’s oil production and exports, which could have further strained the market.
Exemptions and Inflation Concerns
While imports of oil, gas, and refined products are exempt from Trump’s sweeping new tariffs, the broader economic impact of the policies could stoke inflation, slow economic growth, and intensify ongoing trade disputes, all of which are likely to weigh on oil prices. Analysts at Goldman Sachs have responded by sharply lowering their 2025 price targets for Brent and WTI crude by $5 each, with new targets set at $66 and $62, respectively. They cautioned that risks to the oil market are skewed to the downside, particularly due to growing recession risks and potential increases in OPEC+ supply.
Reduced Oil Demand Growth Forecast
HSBC also adjusted its 2025 global oil demand growth forecast, reducing it from 1 million bpd to 0.9 million bpd due to the impact of tariffs and OPEC+’s decision to increase production. The adjustment reflects growing concerns that the escalating trade war and rising tariffs could further slow global economic growth and reduce overall demand for oil in the coming years.
A Volatile Outlook for Oil Prices
With escalating trade tensions, higher tariffs, and OPEC+ production increases, the outlook for oil prices remains volatile. While exemptions for oil-related imports provide some relief, broader economic concerns, including inflation and a potential global recession, continue to pressure prices. As geopolitical uncertainties continue to shape the market, oil prices are likely to remain under pressure, with analysts warning of further downward adjustments in the near term.
