Oil prices have dropped significantly, reaching their lowest level since April 2021, as increasing trade tensions between the United States and China increased fears of a worldwide recession. Brent crude futures fell by more than 2%, while U.S. West Texas Intermediate (WTI) crude futures fell immensely. At their session lows, both benchmarks dropped over 3%, following last week’s trend of decline when Brent decreased by 10.9% and WTI decreased by 10.6%.
The recent decline in oil prices is also attributed to China’s additional imposition of 34% tariffs on US goods, a retaliatory move after the hikes in tariffs on Chinese goods by US President Donald Trump earlier. The hike has stoked investor anxiety over a full-blown global trade war and its capacity to trigger a recession, thereby reducing demand for crude oil.
Vandana Hari, the head of oil market analysis company Vanda Insights, stated in the case, “It’s hard to see a floor for crude unless, and it’s hard to see that.”
Although imports of refined products, gas, and oil were not covered by the new tariffs of Trump, the broader economic effect of the trade policy will be to drive up inflation, slow economic expansion, and increase trade tensions, all of which place severe strain on oil prices. Federal Reserve Chairman Jerome Powell noted that the new tariffs are “larger than expected,” and the economic effect, in the form of increased inflation and reduced growth, will be sizable.
The Organization of the Petroleum Exporting Countries and Allies (OPEC ) recently decided to accelerate its plan for production increases, adding even more pressure to falling oil prices. This is taking place as the global market faces the possibility of reduced demand focus with the growing pressures from trade tensions.
Financial markets have reacted violently to these incidents. Gulf equities plummeted, with the Saudi benchmark index declining more than 6 %, its biggest intraday fall since May 2020. Al Rajhi Bank and Saudi National Bank, large financial institutions, declined by almost 6%, while oil giant Saudi Aramco lost more than 5%.
Taiwan’s index lost some percentage because it prompted the imposition of a short-selling ban. All of these losses reflect growing investor unease at the intensifying trade war and how it has the potential to destroy world economic growth.
Trade tensions escalate financial market instability as investors seek safe-haven assets, fearing a global economic deceleration. Market participants watch events closely to detect any signs of trade tension escalation or reduction between the two largest global economies.
