Oil prices tumble on U.S.-China trade tensions

[WORLD] Crude oil prices have tumbled to their lowest levels in years as the intensifying trade war between the United States and China rattles global markets, stokes recession fears, and clouds the outlook for energy demand. The world’s two largest economies-also the top oil consumers-are locked in a tit-for-tat tariff battle that analysts warn could have far-reaching consequences for the oil industry and the broader global economy.

Oil Markets React to Trade Tensions

In early Asian trading on Tuesday, Brent crude futures fell by 0.4% to $65.78 per barrel, while U.S. West Texas Intermediate (WTI) dropped 0.3% to $61.87 a barrel, extending losses from the previous day. Both benchmarks have shed more than $10 per barrel since the start of April, marking a monthly slump of over 13% for U.S. crude-the steepest since 2021.

The sharp decline follows President Donald Trump’s move to impose sweeping tariffs of up to 125% on Chinese imports, a decision that prompted immediate retaliation from Beijing in the form of equally steep tariffs on U.S. goods, including energy products. The escalating dispute has upended global supply chains and triggered a wave of uncertainty across financial and commodity markets.

“The U.S.-China trade war is dominating investor sentiment in moving oil prices,” said John Evans, an analyst at brokerage PVM, noting that concerns over tariffs have eclipsed other geopolitical factors influencing the market.

Demand Outlook Darkens

The International Energy Agency (IEA) and leading investment banks have slashed their forecasts for oil demand growth in 2025, citing the trade war’s impact on global economic activity. The IEA now expects global oil demand to rise by just 730,000 barrels per day this year-a sharp drop from earlier projections and the slowest pace in five years. Goldman Sachs forecasts Brent crude to average $63 per barrel for the rest of 2025 and $58 in 2026, with WTI seen at $59 and $55, respectively.

China, the world’s largest crude importer, has seen its demand growth projections cut dramatically, from 500,000–600,000 barrels per day to as little as 50,000–100,000 barrels per day for 2025. The country’s manufacturing sector is showing signs of contraction, further dampening expectations for fuel and petrochemical demand.

“The tariff dispute between China and the U.S. remains the greatest threat to global oil demand and the economy,” said Imad Al Khayyat, research leader at London Stock Exchange Group.

Supply-Side Pressures and OPEC+ Response

The demand shock comes as OPEC+ nations weigh their own response. While the cartel has maintained strong compliance with production quotas-116% in March-internal divisions persist, and some members have exceeded their output targets. Saudi Arabia, in particular, faces fiscal pressure, requiring oil prices near $96 per barrel to balance its 2025 budget.

Meanwhile, U.S. shale producers are feeling the squeeze. With breakeven prices for many wells hovering around $58 per barrel, the recent price declines threaten profitability and could slow the pace of production growth. The Energy Information Administration (EIA) forecasts U.S. oil production growth to slow to 300,000 barrels per day in 2025, down from 1.1 million in 2023.

Investor Concerns and Corporate Strategy

The oil price slump is also raising red flags for investors in major oil companies. Exxon Mobil and Chevron are set to report first-quarter earnings this week, with analysts and shareholders closely watching for signs of how the companies plan to navigate a prolonged period of lower prices. There is growing speculation that Big Oil may have to scale back share buybacks, reduce project spending, or tap into cash reserves to maintain dividends.

BP, Shell, and other international majors face similar pressures, with analysts warning that further declines in oil prices could force additional cost-cutting measures and layoffs.

Broader Economic Implications

The trade war’s impact extends beyond the oil market. Economists warn that the escalating tariffs could tip the global economy into recession, with the International Monetary Fund estimating that a full-scale U.S.-China trade conflict could shave 0.5% off global GDP growth annually and reduce oil consumption by 1.2 million barrels per day by 2026.

Market volatility has surged, with the VIX index-a measure of market fear-spiking to its highest level since the pandemic. Hedge funds and other investors have pulled back from long positions in oil futures, reflecting the uncertain outlook.

Outlook: Uncertainty Reigns

While some traders are hopeful that ongoing negotiations could lead to a de-escalation of trade tensions and a rebound in oil demand, recent statements from both Washington and Beijing suggest a resolution may not be imminent. The OPEC+ coalition is set to meet on May 5 to discuss potential adjustments to output in light of the evolving market dynamics.

For now, the oil market remains at the mercy of geopolitics, with prices likely to stay volatile as the world’s two largest economies continue their high-stakes standoff.